Introduction: Baroness Lawrence of Clarendon

Doreen Delceita Lawrence, OBE, having been created Baroness Lawrence of Clarendon, of Clarendon in the Commonwealth Realm of Jamaica, was introduced and took the oath, supported by Baroness Benjamin and Lord Boateng, and signed an undertaking to abide by the Code of Conduct.

Introduction: Baroness Bakewell of Hardington Mandeville

Catherine Mary Bakewell, MBE, having been created Baroness Bakewell of Hardington Mandeville, of Hardington Mandeville in the County of Somerset, was introduced and took the oath, supported by Lord Ashdown of Norton-sub-Hamdon and Baroness Brinton, and signed an undertaking to abide by the Code of Conduct.

Syria: Peace Initiative
	 — 
	Question

Lord Truscott: To ask Her Majesty’s Government whether they consider that the recent Russian-led Syrian peace initiative provides a model for defusing other international crises, for example relating to Iran.

Lord Wallace of Saltaire: My Lords, we welcome UN Security Council Resolution 2118, which determines how Syria’s chemical weapons must be eliminated. However, the conflict continues—this is not a broader peace initiative. Syria’s use of chemical weapons presents different security challenges to Iran’s nuclear programme but there has been a similar international response. The UN Security Council has agreed six UN resolutions on Iran’s nuclear programme, all of which Iran remains in breach of. We hope that Iran will engage substantively with the UNSC mandated E3+3 to resolve the nuclear issue.

Lord Truscott: I thank the Minister for that reply and I declare an interest as Vladimir Putin’s biographer. Many people would argue that the Russian-led Syrian peace plan is the most significant peace initiative this year. To recognise this and to encourage Russia in its peace-making endeavours, a few hours ago I nominated President Putin for the Nobel Peace Prize. Will Her Majesty’s Government do the same?

Lord Wallace of Saltaire: My Lords, this has been a joint US-Russian peace initiative, it is not purely a Russian-led one. We welcome the constructive response that the Russian Government are now making on Syria and we hope and expect that the Russians will ensure that President Assad and his regime are represented at the Geneva II peace conference when it meets at the end of November. We hope and expect, but we do not yet know.

Lord Hannay of Chiswick: Will the Minister correct the noble Lord who spoke before and remind him that the idea of getting Syria to surrender its chemical weapons was raised in this House rather before President Putin raised it? More seriously, will he state that in the event of Syria transgressing the Security Council resolution, the Government would not necessarily be bound by the vote that took place in the other place at the end of August?

Lord Wallace of Saltaire: My Lords, we have to recognise—and I say this as a Liberal who believes in international order and is very reluctant to condone the use of force—that without the threat of force we might not have reached the position we have so far reached in Syria. Just as with the opening to Iran, without the very extensive sanctions against it we might not be having the discussions that we are now having with the Iranian Government. One has to use diplomacy as far as one can, but the big stick behind it sometimes helps.

Baroness Falkner of Margravine: Does my noble friend agree that in conflict resolution it is not so much a model that brings about change but the facts on the ground? In Iran there has been limited but nevertheless very welcome regime change, in Syria there has not. Can my noble friend tell the House whether Her Majesty’s Government are now receptive to Iranians participating in the Geneva II conference?

Lord Wallace of Saltaire: My Lords, we would welcome Iranian participation in the Geneva II peace conference. However, as UN Resolution 2118 spells out, the Geneva II peace conference is based on acceptance of the Geneva I communiqué, and Iran has not yet signalled that it accepts the basis of that communiqué.

Lord Campbell-Savours: My Lords, during the Recess, at the beginning of September, there were UPI international press reports from a reputable source that the Russians were accusing the Syrian opposition of using chemical weapons. There seemed to be almost a conspiracy of silence in the western press about these accusations. What actually happened in the Foreign Office? Was that information followed up, and if it was, what was the conclusion of any inquiry?

Lord Wallace of Saltaire: My Lords, Russian allegations were made. There have been investigations, in so far as it is possible to pursue investigations on the ground within Syria at present, and all the evidence to which I have had access suggests that the opposition did not
	have access to chemical weapons and certainly did not have the capacity to use chemical weapons on the scale on which they were used on 21 September.

The Lord Bishop of Leicester: My Lords, does the Minister agree that this shift in fortunes in Syria is very largely due to the relationship of trust that the United States Secretary of State and the Russian Foreign Minister have developed in recent months, and that similar levels of trust will be vital to resolving other pressing international crises, not least with Iran?

Lord Wallace of Saltaire: My Lords, I agree. I should also say that the British Foreign Secretary has worked extremely hard over the past nine months and more to come to terms with the Russians and to develop a relationship with the Russian Foreign Minister. The European Union high representative, the noble Baroness, Lady Ashton, has also done a great deal of work with the Russians on Syria and as part of the E3+3 on Iran.

Lord Hylton: My Lords, I welcome very much the first steps in restoring diplomatic relations with Iran and the Foreign Secretary’s meeting with his Iranian counterpart. Does the Minister agree that Iran can be enormously helpful in Syria, Lebanon and Afghanistan, as well as in the other country mentioned by the right reverend Prelate? If there is progress on these fronts, would that not justify further steps in normalising our relations?

Lord Wallace of Saltaire: Of course it would. However, we are proceeding slowly and cautiously. There was an Iranian invasion of the British embassy compound only two years ago and we are conscious, as the Foreign Secretary said in his Statement to the Commons the other day, that the Iranian political system is a complex structure and that to be President of Iran is not necessarily to command all power in Iran. When President Rouhani returned most recently he was cheered in the streets of Tehran, but he was booed and his car was apparently pelted by members of the Basij militia.

Lord Triesman: My Lords, I probably should start by making it clear that it is no part of the Official Opposition’s policy to nominate President Putin for the Nobel Peace Prize. The initiatives on Syria, particularly in relation to chemical weapons, are plainly welcome, although there is much more to do on Geneva II. I understand that the Foreign Secretary has done some months’ work on deepening the relationship with Russia, but it does not seem to have deepened enough for it to be a reliable way of achieving the objective in the effort to defuse crises. What positive steps will the Government take, perhaps with the United States and France, to deepen that relationship so that it is more reliable?

Lord Wallace of Saltaire: As noble Lords will know, the Russians are not easy companions. Foreign Minister Lavrov is giving a big speech in Brussels today,
	I understand, on the relationship between Russia and Europe as a whole. Although we welcome the more constructive relationship that we are having at present on a number of Middle Eastern problems, we are also moving towards the EU summit at the end of November on the Eastern Partnership, and Russian behaviour towards Ukraine, Armenia, Moldova and Georgia regarding the possibility of those states signing association agreements with the European Union is, to say the least, not particularly constructive, nor is the effort that it is making to interrupt Lithuanian exports to Russia.

Financial Conduct Authority
	 — 
	Question

Lord Naseby: To ask Her Majesty’s Government whether the Financial Conduct Authority has the authority to assess and monitor consumer finance products and anticipate their compliance with the law and the likelihood of their mis-selling.

Lord Newby: My Lords, the Government have granted the Financial Conduct Authority a product intervention power to protect consumers. This power allows the regulator to mandate, restrict or ban certain features of a financial product, restrict a product’s sale to certain groups of consumers or ban a product outright. This power will extend to consumer finance products when the Financial Conduct Authority takes on responsibility for regulating consumer credit next April.

Lord Naseby: My Lords, that announcement is very welcome, although the delay to next April is one that I do not particularly welcome. Does the Minister recall that the FSA under its watch allowed PPI to happen, costing the banks that mis-sold it well over £1 billion and allowed CPP to sell credit card identity insurance, costing millions of pounds? Although this new body is set up, is it not worrying that the Consumer Panel has yet to meet? Can we have an assurance that practitioners of retail financial services will be on that panel, not least because the retail distribution review is now in force and there will be increasing numbers—millions of our citizens—investing in financial products without taking third party advice?

Lord Newby: My Lords, I am sure that the FCA is well aware of the need to have a Consumer Panel that is as broadly based as possible. It is important to recognise that the FCA now has significant new powers: the product intervention power, the ability to ban products and powers to disclose details of warning notices, for example, as well as a power to take formal action against misleading financial promotions and disclose the fact that it has done so. It has more teeth, and all the evidence so far shows that it intends to use them.

Lord Touhig: My Lords, the case of a man who defaulted on a payday loan of £120 and ended up owing £1,800 was raised by Chris Evans MP, my successor in the other place. The payday loan company in question made 330 attempts to take money from his bank account and charged him £5 on each occasion. They further demanded £178 in interest charges. Some of the tactics employed by the payday loan companies would shame the mafia. Is it not time that we treated them like the mafia, as criminals?

Lord Newby: My Lords, last week the Financial Conduct Authority published its first attempt to deal with the problem that the noble Lord raises. It is proposing that it should be possible only to roll over a loan twice and that if a consumer has a CPA with a loan shark—sorry, if it is a loan shark, it probably does not have any CPA—or an entirely reputable company, the number of payments that will be able to be taken under such an authority will be reduced to two. This will therefore deal pretty comprehensively with the specific type of issue raised by the noble Lord.

Lord Sugar: My Lords, I have seen the suggestions put forward by the FCA on payday loans in an attempt to protect consumers. May I respectfully say that whoever drafted them is a little naïve? Needless to say, those devious people alluded to here will work around them in a few moments. Does the Minister recognise that the only way to solve the issue is to cap the exorbitant interest rates charged and, more importantly, impose strict advertising guidelines where the advertisers are forced to devote as much prominence to warnings as they do to the sales pitch? By that, I do not mean some micro-printing in jargon that is not understood by the average consumer.

Lord Newby: My Lords, the FCA has made proposals on advertising, which the noble Lord may have seen. As for a cap on interest chargeable, the view at the moment is that the FCA does not believe that that is the most effective way of capping the total charge made. I am sure the noble Lord will have seen the Which? report in recent days, showing that borrowers from high street banks are sometimes paying as high, if not higher, effective rates of interest on their loans because of other charges. The key thing is to have a cap on the total cost of credit, rather than simply go for a cap on the rate, which payday loan operators certainly can get around by imposing a whole raft of other charges surrounding the conditions of the loans.

Lord Elystan-Morgan: Perhaps I may raise a point that I have raised on previous occasions. That is to say that the debtor is not entirely without protection in our law. As the Minister will know, a judge of the High Court, or indeed a circuit judge, always has the power in dealing with these matters to ask himself the question whether the creditor has acted unfairly or whether there are conditions in the contract that are unfair. If he finds that to be the case, he can do one of two things: he can either rewrite the contract completely or he can refuse all redress to the creditor.

Lord Newby: I am sure that that is the case, but we want to try to ensure that contracts do not have those unsatisfactory features in the first place and that, if they are unsatisfactory, either they are banned, which the FCA will be able to do, or the rules will be set in such a way that they do not become widespread in the first place.

Lord Davies of Oldham: My Lords, the Opposition are of course pleased to endorse changes to the law that are being effected by the Government at present, although we still doubt whether they are going far enough. However, is there any evidence that changes in the law are effecting the necessary change in culture in the City and elsewhere to ensure that higher standards prevail and that the grievous abuses of the past will not continue?

Lord Newby: My Lords, two things have to happen. First, we have to make sure that the regulatory and legal framework is fit for purpose so that people do not adopt unacceptable methods of behaviour in the first place, and if they do, they can be caught and dealt with properly. Secondly, there is a big issue around the culture in the City, which the Parliamentary Commission on Banking Standards discussed at great length and which your Lordships’ House has discussed. The two have to go hand in hand. The pressure that this House and Parliament can put on the banking sector regarding culture should not be underestimated. Debates here are taken seriously by the banks. We need to keep pressure on them whenever we have dealings with them. This must be underpinned by law and by better regulation, but we need both.

Education: Foreign Languages
	 — 
	Question

Baroness Bakewell: To ask Her Majesty’s Government what steps are being taken to arrest the decline in the number of foreign languages students in schools and universities.

Lord Ahmad of Wimbledon: My Lords, learning a language brings intellectual, cultural and economic benefits to individuals, employers, communities and, indeed, nations. The Government are committed to the teaching and learning of languages in schools. Indeed, from September 2014, primary schools will have to teach a foreign language at key stage 2. Thanks to the English baccalaureate, modern language GCSE entries have also reached their highest level this year, increasing by about 16%. We have also prioritised higher education funding for modern languages courses to ensure the continued availability of language study in higher education institutions.

Baroness Bakewell: I thank the Minister for that Answer. Before I press him further, perhaps I may offer my personal congratulations to the noble Baroness, Lady Bakewell of Hardington Mandeville. I look forward to receiving her post, and I hope she enjoys mine.
	I very much welcome the move to have young children taught languages—I am sure that a great many of us do—but I wonder what will happen in the light of the present situation. The number of universities offering language degrees has fallen by 40% since 1998. With such a fall, what will happen to those young students when they grow up and find that there are not enough available language courses for them to study?

Lord Ahmad of Wimbledon: Of course, the noble Baroness comes to this with a great deal of expertise from her position as president of Birkbeck. The Government have continued through the Higher Education Funding Council for England to treat modern foreign languages as strategically important and vulnerable, and have provided additional funding to ensure that adequate levels of provision remain. To give an example, £3.1 million of further funding for a new three-year student demand-raising programme has already been allocated. We are also encouraged by the recent figures on the Erasmus programme, which show that more than 14,000 students from the UK are now participating in programmes at other institutions across Europe.

Baroness Coussins: My Lords, I declare an interest as Chair of the All-Party Parliamentary Group on Modern Languages. Is the Minister aware that there is now very robust evidence to show that languages at GSCE and A-level are subject to unfair, harsh and erratic marking? This deters schools from encouraging students to choose languages, in case their position in the league tables is damaged. It also deters students from choosing languages, because they know that their chances of getting top grades and university offers might be reduced. Will the Minister undertake to meet urgently with Ofqual and the examination boards, in order to ensure that an equitable marking system can be guaranteed before the 2014 exams?

Lord Ahmad of Wimbledon: I can certainly say to the noble Baroness that I will take back her suggestion to the department. It is important for all of us across the House to underline the importance of languages. The new national curriculum, which has now been published, includes a statutory foreign language at key stage 2. We believe that this will encourage students to take up modern languages, and indeed encourage schools to offer them. As I said earlier, the English baccalaureate is already encouraging more young people to take a language at GCSE level. Let us not forget that it was in 2004 that a statutory undertaking to provide languages at schools was removed. We are trying to restore that, and ensure that this medium to long-term process is long lasting.

Baroness Perry of Southwark: Does my noble friend not agree with me that one very welcome development is that many universities now offer joint degrees? They teach modern languages alongside engineering or business studies, for example. This is exactly what employers tell us they want.

Lord Ahmad of Wimbledon: My noble friend makes a very important point. We need to understand the issue of languages at universities. Many universities
	offer languages as an addition to other disciplines, and people benefit from that. I come from the business community, and when I was on the board of a company we recognised that such degree courses provide a particular technical training alongside a language. Language training has changed—languages such as Chinese are much in demand by employers, and are being encouraged across the board.

Baroness McIntosh of Hudnall: I return to the noble Lord’s point about the requirement for primary school students to now be taught modern languages. Where will the teachers who will deliver languages in primary schools come from, and what qualifications will they be expected to have?

Lord Ahmad of Wimbledon: Again, the issue of teachers arises—you need teachers to teach languages in the first place. I am pleased to say that the Government are encouraging teacher supply on this level. We are making available an increasing level of bursaries for those students wishing to undertake teacher training in languages. Bursaries have been increased for up to 20,000 available candidates with first-class honours degrees who wish to pursue language training.

Lord Grenfell: My Lords, does the noble Lord not agree that it would be a pity for efforts to teach foreign languages to be motivated by purely commercial interests? Trying to get people to be better business representatives abroad is surely not the only reason. Many of the people who are learning foreign languages find that in other countries they speak English anyway, and put us to shame. Would it not be a great shame if future generations did not at least have the ability to read some of the world’s great literature in its original language?

Lord Ahmad of Wimbledon: I agree with the noble Lord’s final point. As someone whose origins lie in the Indian subcontinent, I assure noble Lords that at home mother knew best, and we were taught languages appropriately to understand literature from across the world. While English remains the language of the modern business world, I referred in my opening Answer to the importance of education to understanding cultures across the world. Indeed, looking at the example of the Chancellor and the Mayor of London, we see that both their daughters are currently undertaking courses in Chinese. Anyone who has done business in China will know that without understanding Chinese in China you will not be able to expand your business.

Tobacco Products Directive
	 — 
	Question

Lord Hunt of Kings Heath: To ask Her Majesty’s Government, in the light of the recent vote in the European Parliament, what are their current intentions with regard to the proposed revision of the tobacco products directive.

Lord Hunt of Kings Heath: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I refer noble Lords to my health interests in the register.

Earl Howe: My Lords, we are very pleased to see the move towards tougher action on tobacco, with Europe-wide controls banning flavoured cigarettes and the introduction of stricter rules on front-of-pack health warnings. However, we are disappointed that the Commission’s proposal to regulate nicotine-containing products, including e-cigarettes, as medicines was not supported by the European Parliament. We believe that these products need to be regulated as medicines and we will continue to argue for this during further negotiations.

Lord Hunt of Kings Heath: My Lords, I am grateful to the noble Earl, but is he particularly disappointed that it was Conservative MEPs who voted to weaken tobacco packaging warnings and blocked a ban on slim cigarettes, which are targeted at young women? Will the Government make amends by agreeing to amendments to the Children and Families Bill which would mandate the introduction of standardised packaging in this country?

Earl Howe: My Lords, the tobacco products directive, as the noble Lord will know, does not seek to introduce standardised packaging. As he will also know, the Government have decided to wait before making a final decision on that issue but we want member states to have the flexibility to make further progress on domestic tobacco control measures in certain key areas that go beyond the new directive. We have been helping to shape the final text of article 24 to achieve that objective.

Baroness Gardner of Parkes: Is my noble friend aware that in this country people who have suffered even major amputations are still so addicted to tobacco that they will ask the doctor to hold up the cigarette to their mouth? I have had this report from doctors. Does he not think that what we really have to aim at is stopping smoking among the young? Is he aware that in Australia it is no longer cool to smoke if you are young? Apparently, that is more effective than any of the health warnings.

Earl Howe: My noble friend, as ever, makes some very wise comments. The good news is that the most recent figures on smoking prevalence are going in the right direction. It is undoubtedly true that we can never do enough to raise our game on smoking cessation measures, one of them being nicotine-containing products. That is of course a major focus for Public Health England.

Lord Storey: Does my noble friend agree that if children are being driven in a car where adults, perhaps their parents, are smoking it is extremely dangerous for those children? Does he not think that the Children and Families Bill is an opportunity to put this right?

Earl Howe: I certainly look forward to the debate on that issue during proceedings on the Children and Families Bill and I agree with my noble friend that we have to do all we can to discourage smokers from lighting up when children are in a vehicle. We believe that that can be done without resorting to legislation at present.

Lord Faulkner of Worcester: Is the Minister able to confirm that there is nothing in the tobacco products directive to prevent the Government introducing standard packaging for cigarettes and implementing a ban on smoking in cars when children are present?

Earl Howe: Yes, my Lords. So far there is nothing in the directive to prevent that, which is why article 24 is the most important issue for the Government. We want member states, as I have said, to have the flexibility to make further progress on domestic tobacco control measures in key areas.

Lord Patel: Despite the EU’s lack of interest in regulating for e-cigarettes, is it the Government’s intention to regulate against them in the United Kingdom?

Earl Howe: My Lords, our position is clear: e-cigarettes should be regulated as medicines. These products need to be regulated for safety and quality, one of the reasons being that, as medicines, we can more effectively control their sale to children and the way that they are advertised and promoted. We need to take an approach that is future proof, being applicable to new technology nicotine products in whatever form might be brought forward in the future.

Baroness Finlay of Llandaff: Can the Minister tell us what action the Government intend to take over slim cigarettes, which were not affected in the recent EU directive but which are particularly appealing to young girls and are often a route to introducing them to becoming addicted to tobacco?

Earl Howe: The noble Baroness makes a very good point. While some in the public health community are concerned about slim cigarettes, and understandably so, both the European Parliament and the Council decided that slims should not be banned under this directive. However, she is right that slims are known to be more attractive to women than men. It may be something that remains on the agenda for future consideration at a European level.

Viscount Ridley: My Lords, is the Minister aware of evidence from New Zealand that e-cigarettes are extremely effective in getting people off tobacco cigarettes and that they are more effective than tobacco patches? Is it not important that in regulating e-cigarettes we do not discourage them from taking a considerable market share from tobacco products, given that vaping is clearly much safer than smoking?

Earl Howe: My noble friend is right. E-cigarettes certainly have the potential for being a force for good in helping smokers to quit. At the same time, we do
	not want them to become a gateway into smoking. The aim is to have licensed products that have demonstrated safety, quality and efficacy, and for such products to be available as widely as possible.

Lord Brooke of Alverthorpe: Will the Minister take note of the fact that people have moved from heroin to methadone, which is less dangerous to them than heroin? In fact, we now have hundreds of thousands of people parked on methadone and there is no way in which we can get them off it. That is extraordinarily expensive for the country and bad for their health.

Earl Howe: I recognise the issue that the noble Lord raises, but perhaps that is a debate for another time.

Financial Services (Banking Reform) Bill

inancial Services (Banking Reform) Bill8th Report from the Delegated Powers Committee10th Report from the Delegated Powers Committee

Committee (2nd Day)

Relevant documents: 8th and 10th Reports from the Delegated Powers Committee.
	Amendment 43
	 Moved by Lord Sharkey
	43: After Clause 8, insert the following new Clause—
	“Competition and diversity
	The Secretary of State must bring before Parliament within 6 months of the passing of this Act proposals to increase competition and diversity in banking by imposing upon any bank in which Her Majesty’s Government is a majority shareholder a duty to apply the following principles—
	(a) the principle of regionality whereby each branch of the bank is permitted to take on new deposits, open new accounts and make loans to companies or individuals only when the registered addresses of these companies or individuals is within the defined geographical area of operation of that branch;
	(b) the network principle whereby regional groups of local branches are autonomous in terms of governance, publish separate reports and accounts, collaborate with other branches to share central services such as the provision of systems, marketing, specialist financial products, liquidity management and wholesale funding while also maintaining appropriate mutual guarantees and self-regulation within the group to ensure that failing local management and branches are dealt with within the group with no recourse to the taxpayer;
	(c) the stakeholder principle whereby the governance of regional groupings of local branches explicitly includes stakeholder representation, comprising local businesses, customers, suppliers and employer and elected employee representatives;
	(d) the social purpose principle whereby a broader social purpose is embodied either in the banking licence of the bank or other statute so that the directors do not have a duty to maximise profit, but to ensure the profitability and financially sustainability of their local operations in supporting the economy of their regions of operations and financial inclusion in those regions, and nothing in this social purpose principle requires making loans that could not reasonably be expected to be repaid.”

Lord Sharkey: My Lords, this is a probing amendment. It is designed to allow us to consider what progress we are making in generating competition and diversity in our financial system, and what steps we might take to accelerate this process.
	From the start, the Government have recognised that there is a problem with the levels of diversity and competition in the financial system. The coalition agreement of May 2010 commits the Government to,
	“bring forward detailed proposals to foster diversity, promote mutuals and create a more competitive banking industry”.
	A year later, the Commons Treasury Committee published a report entitled Competition and Choice in Retail Banking. This report showed competition to have declined. Part of the evidence for this decline was in the simple increase in concentration of financial services; part of the evidence was in the decline in customer satisfaction. The report notes:
	“Competition policy should maximise the benefit to the consumer. Our evidence suggests that this is not happening. The large banks perform poorly on many consumer satisfaction surveys relative to other providers. Survey evidence consistently shows customers are dissatisfied by service quality and the lack of real choice on offer in the marketplace. In a genuinely competitive market we would expect firms which provide superior service, choice or prices to gain significant market share from rival firms, but we see little evidence that this is happening”.
	The committee is there describing in restrained and measured language a cartel-like situation. In other words, there are too few banks, and those are too big and too similar. The banks themselves did not agree with that view. The committee noted:
	“The large banks have told us that ultimately consumers will benefit from lower prices resulting from the economies of scale and synergies provided by larger more diversified banks. We agree that there are economies of scale/minimum efficient scale in retail banking which will ultimately limit the total number of firms in the market. However, we question whether the need for economies of scale justifies banks having a 30% share of the market or whether such benefits, if they exist, will be passed onto consumers in a market where competition is deficient. Indeed, such economies of scale benefits are likely to be outweighed by the negative impact on competition by those providers who are perceived to be ‘too big to fail’”.
	In addition, there are two other factors. First, as Andy Haldane has noted, there is a case for concluding that over $100 billion in assets, banks actually become less efficient. They are too big. Secondly, the evidently corrupt culture we have seen in some of our banks is a clear symptom of a lack of real competitiveness and is probably chiefly caused by this lack. It is competitiveness—real competitiveness—that keeps companies honest, or at least very much more honest than some of our banks have been. I rehearsed all their recent and shocking failings at Second Reading, and I will not do so again now, but I will again point out that the PPI scandal is the clearest possible indication of non-competitive, cartel-like disregard for the interest of consumers. Banks sold policies which they knew did not serve the ends they were supposed to serve, and they did it on a gigantic scale. This would not happen in a truly competitive market.
	This is the situation today: there is a lack of real competition and of real diversity. A study by the University of Oxford published in April this year by the Building Societies Association shows that across both the savings and mortgage markets diversity
	has dropped by about 20% since 2004. The report acknowledges some hopeful signs and says that in recent years the decline appears to have levelled off, but it concludes:
	“If the Government is to fulfil its commitment to foster diversity it will need to do more to ensure that a variety of organisations are able to operate in financial services markets in the future, with the aim of reversing the decline in diversity... since 2004”.
	It also says, bluntly:
	“Consumers are likely to benefit less from competition than a decade ago and if another crisis were to hit, the system is more vulnerable than it was”.
	The Government are clearly alive to the problems of competition and diversity and to their importance. Many initiatives, legislative or otherwise, have been aimed at bringing about improvements in both, but there is nothing in place which will produce any significant improvements in any near future, and there may be nothing in place at all that will really transform the competitive landscape. Divestment of branches and regulation of P2P and crowdfunding are welcome, and easing of the difficulties in acquiring a banking licence is very welcome indeed, but the plain fact is that we start from a position where the large banks have 80% or so of the market in the UK and have behaved in a cartel-like manner. The measures in place or in progress will surely not reduce this figure by much in the next 10 years. In fact, I would be very interested to hear if the Treasury has a medium-term forecast of market share of the big banks. Perhaps the Minister could help with that in his reply.
	This 80% dominance of our big banks is the cause of the lack of diversity in our financial system, which is now very much less diverse than it was 50 years ago. The German savings bank association pointed out in May this year that 70% of German banks are mutually owned or not for profit. It also noted that in the UK just 3% of banks are local, compared to 34% in the USA, 33% in Germany and 44% in Japan.
	The question is, of course: what can be done to speed up the progress of competitiveness and diversity? I do not think the answer to this question should be “Nothing”, or “We do not need to”, or “We can wait for some technological change to eventually produce the results we look for”.
	I have spent almost my entire commercial life working with very large multidivisional and multinational corporations. They are fiercely competitive because they are committed to securing even the smallest possible profitable increase in market share. They are committed to doing this by being dedicated to serving the interests of their customers because they feel, no matter how big they are, the relentless threat posed by very much smaller, more agile and more innovative competitors. We need all these things, especially the last, to be true of our banking system.
	I think any really substantive answer to the question of the lack of competition and diversity will have to address directly the lack of the true regional or local banking and the absolute dominance of one type of banking. This amendment sets out a proposal to do just that. We can do more and do it more easily with banks we own than with the other banks. We have an opportunity to use our ownership to begin to bring about the transformative changes we need.
	The amendment proposes that the Secretary of State must bring before Parliament a plan to increase competition and diversity by imposing on banks we own a duty to apply the principles of regionality, networking, stakeholder involvement and social purpose. The principle of regionality is to restore real localism to banking, so that banks really know their areas and their customers in a way which is emphatically not the case right now. The network principle is to give regional groupings of branches a degree of real autonomy and some real identity. The stakeholder principle is to give representation in the banks’ activities to local businesses, customers, suppliers, and employees as well as employers. The social purpose principle is to explicitly give banks a local social purpose and responsibility. It is these principles that we need to see in operation if we are to introduce any real competitiveness, any real innovation, and any real diversity into our banking system.
	As the noble Lord, Lord Eatwell, said at Second Reading, the Bill before us introduces no fundamental change in the competition regime. That is a pity. I look forward to hearing Lord Eatwell speak in a moment to the next amendment in this group. I say again that this is a probing amendment. It would be disappointing if the Government were to respond only by saying that it would be undesirable or impossibly difficult to regionalise banks. That would be to miss at least some of the point. I hope the Government will respond to this probing amendment with, at the very least, an account of how they intend to accelerate progress towards real competition and diversity and a reasonably detailed description of how they would like to see the banking landscape in the medium-term future. I beg to move.

Lord Eatwell: It would probably be helpful if I spoke now, and also introduced the amendment which is grouped with this one. I am grateful to the noble Lord, Lord Sharkey, for mentioning the comments that I made at Second Reading, but I feel that his amendment, while it raises a series of valuable issues, conflates some of them in a way which is not entirely helpful.
	The first point is the one that he also made, which is that there has been no fundamental thinking at all about the structure of banking in this country. The whole discussion about ring-fencing which occupied us last week is a modification of the existing structures of ownership, rather than encouragement to develop an entirely different and more competitive banking structure. That is a key issue which underlies the amendment in the name of the noble Lord, Lord Sharkey, and the one that is in my name and that of my noble friend Lord Tunnicliffe. Where the issue has been conflated is that regional banking, to which he referred, should be separated from the issue of competition. Either or both can be promoted, but they have to be seen as separate entities. For example, the chief executive of Santander has recently written in the Financial Times that she would like to see a significant increase in regionalisation in its activities. That, of course, is not necessarily an increase in competition, but is a more regional focus of the single entity.
	It is, however, encouraging, with respect to the regional issue, that the Governor of the Bank of England argued in Leeds a couple of weeks ago that he was very much in favour of an increase in regionalism in British banking, and I wonder whether the Government agree with him in this respect. The key issue underlying this is not regionalism so much. After all, if we look across Europe, it was the small regional banks which failed in their dozens, particularly of course in Germany. The issue is of relationship banking, and the return to a close relationship between the lending entity—which used to be the manager of the bank—and the community in which he or she is located. For example, that was an important force in the development of the science park in Cambridge. At that time, Barclays Bank played an important role in the funding of the science park. The manager, who took something of a punt in this respect, was of course then promptly moved on, because it was felt that he had overstretched his remit. I am very sympathetic to the idea of regionalism, but we have to see it in the context of a secure structure, without creating the rather weak structures which collapsed in other countries. We have to focus especially on the issue of relationship banking.
	I now turn to the amendment in my name and the name of my noble friend Lord Tunnicliffe. This amendment seeks to look in particular at competition, with which the noble Lord, Lord Sharkey, began his discussion. As he pointed out, while at the beginning of the financial crisis it was argued that banks were too big to fail, they are now much bigger than they were then as a proportion of the overall UK market. The “too big to fail” issue is even more important today than it has been in the past.
	There is no doubt whatever that the regulatory system itself—as well as various other aspects of banks’ activity, including the payments system, to which we will return later—has been a very effective barrier to entry. Only one significant deposit-taking bank—Metro Bank—has been introduced into the UK system over the last five or six years. We need to tackle this issue of competition. It was striking that the banking commission argued in the second volume of its report that,
	“a market study of the retail and SME banking sector, with a full public consultation on the extent of competition and its impact on consumers”,
	should be commenced immediately. It continued:
	“We make this recommendation to ensure that the market study is completed on a timetable consistent with making a market investigation reference”,
	to the competition authority,
	“should it so decide, before the end of 2015”.
	The Government’s response to the parliamentary commission on this point does not state that they reject this recommendation. Instead, they imply that they will fulfil it. However, what has happened? Nothing; absolutely nothing. They are bringing forward the OFT market review of small business banking, but this was not talking about small business banking. They are not putting in place a market review of the retail banking sector as a whole. Why on earth not? That is what is necessary, and what this amendment calls for.
	The Government say that they are in discussions and that they are engaging with the problem. We would like to see some evidence of that. It is just not enough; it is too piecemeal, and not transparent. A proper review of competition in the banking sector is required. This amendment would secure that review in the manner which the commission recommended.

Lord Flight: My Lords, I declare an interest as a director of Metro Bank. I support Amendment 102, in the name of the noble Lord, Lord Eatwell. The Government are now well aware of the competition issue, but no particular policy has been formulated for how to deal with it. This legislation offers the opportunity to require that that should be prescribed. I will say more about competition in a minute.
	While I support the principle behind the amendment in the name of the noble Lord, Lord Sharkey, I have strong reservations about regional banks. I remind noble Lords that, going back to the second half of the 19th century, when an industry got into trouble the regional bank failed and the whole region became depressed, often for a decade or more. The principle at that time, led by individuals such as Walter Bagehot, was to create national banks to spread the risk. Therefore, I am not sure that regional banks are particularly the answer.
	Government policy has been anti-competition going back to at least Barings. I remember more than 10 years ago having an extensive debate with the late Sir Eddy George when he was Governor of the Bank of England, because it was stated policy that lender of last resort facilities would apply only to banks that were too big to fail. It seemed to me completely the wrong way round in that it gave smaller banks a disadvantage in terms of what they had to pay for deposits. Lots of them, such as Hambros, closed down. It created the great risk, for which we subsequently paid the price with the banking crisis. Elements of uncompetitive measures have been the big—very much higher—capital ratios that smaller banks have been obliged to have in relation to mortgage lending; the costs of the payment system; and the difficulty of getting a banking licence. If I may boast, I think that Metro Bank is the first new high street bank to have been set up in 120 years.
	However, I therefore have some sympathy with the second part of the amendment of the noble Lord, Lord Sharkey. What he is saying, in my language, is that we want high street banks that will get dug into their communities and will naturally get involved with sponsoring activities in those communities. That is exactly what Metro Bank is doing. It is very good business to do it and very popular. When we open branches, there are queues of people waiting to come in and open accounts because they are so fed up with the appalling service that they have had from the banking oligopoly for the past few years. It was, indeed, very much an oligopoly. I think it was Lloyds that first decided that you could cut all service and just leave people with telephone numbers to dial. The other banks all followed, with a very substantial boost to profits as a result. For customers, however, it has been one of the biggest factors in making the large banks so unpopular.
	I think the outlook is encouraging. Metro Bank plans to have something like 6% of the nation’s deposit base by 2020, which is not that far away. There are other new banks coming up. I believe that the face of the banking scene, even if the Government do not do much about it, will look very different in some 10 years’ time. One of the issues is that the big banks are simply too big to manage. The have archaic silo systems, which are an enormous problem to them. Their activities are simply too large. The requirement for increases in capital will lead to them shrinking their balance sheets and, rather like the old-fashioned huge department stores in the US, it is inevitable that business pressures will lead to their decline.
	I attended an interesting meeting that was addressed by Andrew Bailey, the head of the PRA, this morning. He made the point that perhaps the regulator had been wrong to require small new banks to have much higher capital ratios against certain forms of lending. The logic for that was that new banks were more risky—fair dice—but its net effect simply increased the oligopoly strength of the existing large banks. The PRA is looking constructively at making capital ratios, as far as possible, the same across the board, whether banks are large or small. So the PRA is very much on to the need for more banking competition and for it to be supportive and helpful to new banks, as opposed to having rules that hinder them.
	The Government, too, have seen the point and are keen on more banking competition. It seems to me, however, that they have not thought about it adequately and have not made up their mind about what more should be done, other than expressing a wish for more competition. That is why a requirement to look into the subject would be no bad thing. However, as I said, while I fully support the principle of more high street banks doing the things that high street banks always did, I am less comfortable with the amendment of the noble Lord, Lord Sharkey, which I think is overprescriptive.

Lord Glasman: My Lords, I should like to speak in favour of the amendment moved by the noble Lord, Lord Sharkey. It is very important that we recognise the severity of the situation relating to the banks and precisely what happened in 2008. I commend the localism agenda of the Government in terms of politics, but I wait to see how the localism agenda applies to banking institutions and their restructuring. It is very important to see the four root causes of the crash.
	The first is that it is not only the state that centralises power; it is also capital that centralises. There is a consistent tendency to oligopoly and then to monopoly, unless there are constraints on that. What we have seen, and what we continue to see, is that 80% of our banking still goes through the same failed institutions, and what we have is more of the same, rather than something distinctly different. What we have is a collapse of regional business investment, which is extremely harmful and manifests itself in two ways: in constraints on productivity on one side and, on the other, the extraordinary growth of payday lenders, as the banks cannot deal with local needs. So centralisation is one
	aspect of the crash, and a lack of accountability in the structures of the bank is the other. This is where I am very much in favour of what my noble friend Lord Eatwell says, with one proviso.
	Relationality is crucial and, when there is representation of interests in the corporate governance of banks, you have a greater degree of honesty. If you look at the story with the Spanish banks and the German local banks, you find that the constraints on them were eased and they were, in fact, acting like normal profit-maximising banks. They had lost their regional commitment and got themselves involved in series of overextended loans, very similar to ours. I say to the noble Lord, Lord Flight, that that is not a condemnation of regional banks; it is a condemnation of the fact that they ceased to be regional.
	One anecdote that crystallises the problem is the example of Northern Counties Permanent Building Society, which was established in 1850 and flourished through 150 years. It went through four depressions, grew and merged as a mutual in 1965—noble Lords will see where this story is going—with the Rock Building Society. It then became the Northern Rock Building Society, which did well until 1997, when it was demutualised. It became the fourth largest mortgage lender in the country and sponsored Newcastle United but it also, by the maximisation of returns, completely lost its asset. We do not need any symbolism here; Newcastle United Football Club used to be sponsored by Northern Rock and now it is sponsored by Wonga. That is the reality of the circumstance that you confront, and there is no virtue in that; it is of no benefit to anybody. There is centralisation, lack of accountability, recklessness and deceit. They are all part of the same story of being unable to hold anybody to account. Without incentives to virtue, unfortunately, you get incentives to vice. That was the system, and it is the system that we still have.
	I want to speak for the logic and the virtue of the amendments proposed here. The first element is regionality. As I say, all the cases that my noble friend Lord Eatwell and the noble Lord, Lord Flight, referred to, concerning Germany and Spain and their regional banks, were due to those banks no longer being regional. When there is a constraint on the bank to lend within a prescribed geographic area, banks will flourish. We can see how effective that has been from the Sparkassen in Germany. I remember the noble Lord, Lord Flight, a while ago referring to the stability of the German system being based on its currency, but it is also based on the fact that there is a regional banking system that sustains business through ups and downs, and where there is a genuine local knowledge of what is going on in those businesses as well as a vocational work scheme.
	The third part of this is the most important—that is, the representation of the skills and knowledge of the workforce and stakeholders in the corporate governance of the firm. This leads to a balance of interests that holds people accountable. I completely agree with my noble friend Lord Eatwell about the stress on regionality and relationships in the second part of the amendment; relational banking is absolutely essential. However, that implies local knowledge and the restoration of what we have lost, which is trust. So
	this is not a quick fix. I commend the work of the most reverend Primate the Archbishop of Canterbury in talking about a 10 to 15-year structure of reconstituting credit and trust in the nation. There will have to be a coalition between different stakeholders in doing so. But it is a terrible missed opportunity when we have an asset that has not been regionalised and has not been subject to proper balance of power in corporate governance, with no regional accountability in it to look at bad practice and correct it before it reaches the taxpayer. Above all, as the story of Northern Rock teaches time and again, if you maximise immediate returns on investment, you will lose the asset. There have to be constraints on that which allow capital to maintain its presence in areas and be a partner to business and families. In terms of regionality, relationships, stakeholder accountability and non-maximisation, this amendment holds the key to the establishment of the banking system that must come now.

Baroness Liddell of Coatdyke: My Lords, I apologise to the House that I was not able to speak in the Second Reading debate, but I have followed the debate on this legislation very closely. I support my noble friend Lord Eatwell’s amendment but also wish to speak in support of some of the things discussed by the noble Lord, Lord Sharkey.
	Airdrie Savings Bank is unique in Britain as it is the last mutual trustee savings bank in the country. I declare an interest as I have had an account there since I was six and my father also had an account there from the age of six. The difference between Airdrie Savings Bank and other banks is that it cannot offer the gizmos offered by the big high street banks. However, it offers a localised service that is completely trustworthy. There are no two ways about it: it has had its difficulties throughout the crisis, as has every part of the financial services industry. However, because it is unique, sometimes there is a risk that its needs are forgotten about. I ask the Minister to ask officials to look specifically at how an institution such as Airdrie Savings Bank can be protected. It is, indeed, a very venerable bank; my noble friend Lord McFall addressed an event at its 150th anniversary some eight or nine years ago. The bank is completely rooted in its community. The only perk its directors get is a fish supper once a month. There is no question of any extreme expenditure or remuneration being given to the bank’s directors.
	I say to the noble Lord, Lord Flight, whose passion for financial literacy is well known in this House, that having a bank that is so extremely local means that financial literacy is not something we necessarily have to worry about. Indeed, it is located in a community that is largely financially excluded. Without Airdrie Savings Bank, many people would not have a bank account.
	I have known the bank for many years. When I was Economic Secretary to the Treasury and Airdrie Savings Bank staff came down for a fiduciary interview with staff at the Bank of England, which was then in charge of regulation, there was a threat of a bribe being offered as Airdrie staff brought with them tins of shortbread. I can be extremely proud of Airdrie Savings Bank. As someone who, in various guises, has
	had to promote financial services in this country, there are not many other banks that I can be proud of. It would be a pity if, through this legislation and, for example, capital adequacy requirements, difficulties were put in the way of this superb institution. It is an old-fashioned institution but, frankly, would it not be a good idea if banking became boring and old-fashioned again?

Lord Higgins: My Lords, both these amendments have much to commend them. The point that I would like to pick up regarding Amendment 43 is the position of the banks in which the taxpayer has a large holding. Having bailed out a number of banks, it is extraordinary that the Government have stood back completely from any involvement at all in what those banks are doing. In the context of competition, which we are now discussing, there is a strong case for them to set an example. This would enable at least a degree of competition to be introduced at this stage without much delay.
	Amendment 102 also has much to commend it. It suggests that the inquiry should look into a series of aspects with regard to banks such as the level of competition, the obstacles to it, other actions and so on. One should add to that a careful study of what the economies of scale in banking actually are, because I suspect the reality is that they do not exist to anywhere near the extent that the size of the banks at present would suggest. On the other hand, we would find that there were major diseconomies of scale, not least the enormous risks to which we have been exposed as a result of banks being the size that they are. We frequently say that they are not only too big to fail but too big to manage. It is clear that they are too big to manage, and that is a major diseconomy of scale.
	If we are going to set up the kind of inquiry that the Opposition are advocating, which I would support, it needs to look at economies of scale in this context and consider whether—given that the banks seem to have been motivated as much by megalomania as by anything else—they are of an appropriate size or whether some consideration ought to be given to whether competition would be increased if they were broken up. It is curious that competition in this area has been, as far as I can see, in no way affected by this or any previous Government’s overall competition policy, which has simply not been applied here. If, as the noble Lord said just now, the major banks have probably 80% of the market—given that normally anything over 30% would be appropriate for an investigation—we need to look at that carefully.
	The lack of competition is affecting two things: the supply of loans to consumers and small businesses in particular, and the price. It is clear that there is a serious lack of supply for businesses that are trying to get finance for expansion. Despite all the Government’s efforts, of which there have been a number, to increase the supply of loans to small businesses and others, the loans do not seem to be getting through to the people who the Government would like to help.
	As for the price, one has only to look at the cost of capital to banks and then at the amount that they are charging consumers to realise that the situation is lunatic. I wish my noble friend Lord Flight well because
	there must surely be scope for something to be done on that issue. The difference between the cost and the amount being charged is totally disproportionate. This came up earlier in Question Time, when my noble friend on the Front Bench replied that there is concern about the amount being charged by banks when compared with what is charged on payday loans and so on. A helpful and illuminating article in the press in the past few days brought out this point. I hope that one can get something done about that.
	We have some way to go and noble Lords will no doubt wish to return to this matter on Report. I hope that we will then take a definite decision or, even more, that the Government will respond to the proposal for a study. However, this is only a study, and a number of other measures to which I have referred go wider than this. These measures could be taken now and have some effect on the appalling oligopolistic situation in the market at the moment.

Lord Phillips of Sudbury: My Lords, I, too, broadly support these two amendments. It is encouraging that every speaker so far has taken that broad point of view. As my noble friend Lord Sharkey said in opening this debate, the amendment in his name and that of the noble Lord, Lord Glasman, is a probing amendment. I hope that the noble Lord, Lord Eatwell, was advancing Amendment 102 in the same spirit. I very much hope that the Minister will say that he will take away the contributions made, so that we can come back together on Report with an amendment that answers some of these concerns.
	Perhaps the most striking statistic that we have had was that given by the noble Lord, Lord Eatwell, who said that in Germany 80% of banking is provided by local regional banks whereas here the figure is only 3%. I think that was said by the noble Lord, Lord Eatwell, or perhaps it was the noble Lord, Lord Glasman.

Lord Sharkey: It was me.

Lord Phillips of Sudbury: I am sorry, it was my noble friend. That is a stunning statistic. The fact that some of the small German banks failed in the great crisis seems to reflect a strength and virtue as compared with the situation in this country where, but for the injection of in excess of £80 billion of taxpayers’ funds, as far as I can see the whole banking system would have failed. The big clearers would have gone to the wall—that is the truth. We do not even have a market banking system that complies with the supposed basic virtues of a capitalist system: when they were tested, they could be held up only by immense government input.
	I suggest that Amendment 102 might well have called upon the reviewer to look at more extensive issues. I would hope that we could also have a long, cool and deep look at the problems of entry into the banking system. I do not think that “competitive” is the right word to describe the current difficulties. Also, we should look hard at how we could bring in regional banks, along the lines of Amendment 43. I have difficulty with some of the proposals there—for example, that there should be statutory constraints on how a regional bank can accept deposits, being unable to
	accept deposits from individuals or companies outside its region. I cannot see that that is a workable proposition. There are several detailed issues such as that which need careful review.
	I also suggest to the Minister and to the Committee that we should look at the prospect of some of the smaller building societies being able to convert into retail banks much more easily than is currently the case. In my small town of Sudbury in Suffolk we have the Ipswich Building Society. It is excellent and is rather like the old clearing banks used to be when I was a young man: they were close to their patch, knew their customers and had stable staff and a manager who was known and knew his customers—in fact, they were pillars of the community. Today, all that has gone from the clearing system with a vengeance and, I believe, at great cost to our society and to the effectiveness and, indeed, security of the banking system.
	A return to relationship banking is not something that one can conjure out of thin air, least of all through legislation. Indeed, the restoration of trust in the banking system is a bedrock of and essential for a revival of banking that we can be proud of. As I said, I hope that the Minister, in consultation with those who have tabled these amendments, will be able to come back on Report with something that we can all get our teeth into.

Lord Turnbull: My Lords, I, too, am grateful to the noble Lord, Lord Sharkey, for giving us the opportunity to debate this issue, although, as I will make clear shortly, I have come to a slightly different conclusion. When we get to Amendment 103 next week, we will be talking about the RBS good bank/bad bank issue. The commission on banking, which more or less in the same paragraph talked about that issue, also recommended that the Government should examine the scope for the disposal of any RBS good bank as a multiple entity. I think that these studies were called for by the end of September. We have now gone beyond that point and I hope that the Minister will be able to tell us when we can expect those reports. To some extent, the amendment in the name of the noble Lord, Lord Sharkey, seeks to pre-empt the conclusion. I should like to wait to see what the Government have to say on this and then take the matter on from there.
	There are also other concerns. As well as trying to increase competition faster than would be achieved under RBS’s current plans, we should always be seeking to return RBS to its position as a fully effective lender, particularly to SMEs. We are asking it to reconstruct itself so that it gets back into the private sector and becomes a ring-fenced bank and a non-ring-fenced bank. My concern is that if we also ask it to start work on a regional agenda now, that will simply overload the system and not get it to the point of becoming an effective lender, which is the main priority in the short term.
	It is not clear to me that the regional agenda will necessarily be an effective model, particularly when it is created by taking clones of existing bank networks—by simply breaking up the existing banks into smaller bits and trying to run them on the same lines, with much of the same culture and same technology. I wonder whether that will work and whether the future doe not lie in a
	more disruptive technology that will grow up from below. I wonder why, for example, we are keen on switching. Why will people want to switch from one kind of a bank to another kind of bank if it is just a smaller version of the same kind of bank? I am beginning to think that the real future lies not so much in the break-up of the existing model but in a disruptive technology, with someone doing to banking what Amazon has done to retailing.
	It is inevitable that there will be a full market investigation reference to the Competition Commission. Again, I would not start that now, while so much else is going on, but begin sometime after 2015. My preference would be to fold this regional debate into that, rather than pursue it now.

Lord McFall of Alcluith: My Lords, the noble Lords, Lord Eatwell and Lord Sharkey, have done the Committee a service by raising this issue. Four years on from 2010, when the Government came into office, we have much less competition: banks are bigger; the cost of capital, as the noble Lord, Lord Higgins, said, is more expensive; and SMEs’ credit is still drying up. The problem is that British banking lacks a “spare tyre”, as Adam Posen of the Monetary Policy Committee said. I remember a conversation that I had with Stephen Hester when he was chief executive of the Royal Bank of Scotland. He said, “If you have new entrants into the banks, all they will do is replicate the business model that already exists. You need a Google, a Yahoo or a Facebook to have that disruptive technology”, as the noble Lord, Lord Turnbull, described.
	I was of the opinion that, as a commission, we should have a referral to the Competition and Markets Authority straight away because this is an area in which, when talking about change, we are talking about years and possibly decades. If we do not get on to this straight away then we will see very little improvement at all in five or 10 years’ time. As the noble Lord, Lord Eatwell, said, if we are talking about establishing regional banks—an aspiration which the most reverend Primate the Archbishop of Canterbury articulated—we need a secure structure. We have to understand how small banks failed. People say, “Well, small banks are just the same as large banks”. I have a quote here from February 2006 in which an individual said:
	“we are now in the midst of another wave of innovation in finance. The changes now underway are most dramatic in the rapid growth in instruments for risk transfer and risk management ... These developments provide substantial benefits to the financial system. Financial institutions are able to measure and manage risk much more effectively. Risks are spread more widely, across a more diverse group of financial intermediaries, within and across countries”.
	So, the system is safer. The individual who said that was a certain Tim Geithner, who the President of the United States then appointed as the United States Treasury Secretary. Mr Geithner had a great knowledge of individual institutions but Mr Geithner, like the IMF and others, was clueless about the interconnectedness of the banks, which is why the banks went down. Whether we are talking about large investment banks or small regional banks we must turn our attention to that area of risk if we want a better system.
	My noble friend Lady Liddell mentioned the Airdrie Savings Bank. I was privileged to give the 150th anniversary address there. To re-emphasise what she said, the non-executive directors there were local and unpaid. The Airdrie Savings Bank was a fly on the back of the elephant that was the Royal Bank of Scotland. However, the Airdrie Savings Bank prospered and the Royal Bank of Scotland went under. The Chancellor at that time, Alistair Darling, said that he got a call in the morning from Tom McKillop, the chairman of the Royal Bank of Scotland, saying that it would be out of business in the afternoon if the Government did not step in.
	Surely there are lessons to be learnt there from the small banks. I do not accept the proposition that small and regional banks are not on. A chief executive of a very large bank said to me in private that we should look at retail banking in the United Kingdom as utilities—as predictable and boring activities. That is the way we should be looking at our banks. I think a referral to the Competition and Markets Authority would be wise at the moment because we will be talking about this issue for 10 or 15 years to come. If we do not look at the structure of retail banking in the United Kingdom we are simply going to replicate what we have at present. There is an opportunity for innovative thinking. These amendments offer the Government that opportunity and I hope that the Minister in replying will indicate that this is a fertile area and we can get on to looking at a new structure for our banking.

Lord Desai: My Lords, I support the amendment in the name of my noble friend Lord Eatwell and want to comment a little on the amendment from the noble Lord, Lord Sharkey, and my noble friend Lord Glasman. The key is what the noble Lord, Lord Higgins, said. Where are the economies of scale in banking from? Why are large banks more successful in surviving and, as it were, swallowing up smaller banks here than they are elsewhere? We had smaller regional banks for a number of years in the 19th century and later. Then we had the concentration of only five large clearing banks left and then even fewer. One question that the competition authority ought to ask is, “Are the economies of scale technological, or is it just that larger banks can borrow money on the money market at a more favourable rate than small banks can? Or are we as authorities putting serious restrictions in the path of small banks to stop them from starting and prospering? Are we imposing extra costs on the small banks so that the large banks get away with lower costs than small banks?”. Those are the questions that we ought to examine.
	I do not particularly mind whether these are regional banks—what we need is more diversity in banking. Regional and local banks may have failed not because there is something wrong with being local or regional but because there was a storm of cheap credit available and people decided that even if you were a local bank you could still get into the American subprime mortgage market to make money. That is what ruined people; it was not being regional. In a globalised market you have access to buying and selling assets all over the world. German local banks got into subprime mortgage markets in America and lost out.
	We really ought to nail down where the economies of scale are and encourage and increase diversity by removing the non-competitive restrictions that currently help large banks to dominate, rather than creating small banks that would have special competitive advantage—as it were, some kind of subsidy—which may be desirable in some larger sense but is not economically efficient. We have to ask whether large banks are surviving because of a competitive advantage and whether they will fail again, costing us a lot of money. Should we look for diversity and a level playing field among large and small banks?

Lord Newby: My Lords, it is a great pleasure to respond to this fascinating debate. I should say at the outset that the Government are committed to greater competition and diversity in the UK banking sector, both locally and nationally. Effective competition is essential for ensuring that customers get suitable and affordable products.
	It is not true to say that there has been no fundamental thinking by the Government on the structure of banking and the need for greater competition. That is why we asked the Independent Commission on Banking to investigate competition issues in the UK as a key part of its work. Half of its report covered competition issues. It identified a number of issues and areas which needed action and we are taking forward its recommendations for dealing with these. For example, we are removing the competitive advantage big banks get from being seen by the market as too big to fail through the ring-fence. We have secured a new seven-day switching service, delivered by industry to tackle inertia in the personal current account and SME business account market. This service was launched on 16 September. We have introduced a strong competition regulator by giving the FCA an objective to promote effective competition.
	The new regulators have already brought forward big changes on the regulatory side through their barriers to entry work. I commend the report that they produced earlier in the year to the noble Lord, Lord Phillips, in particular. This will make it easier for new banks to enter the market, to grow and to compete with the large incumbent banks. These changes have been greatly welcomed by the industry and will make a big difference going forward for those who want to start a new bank, be it to serve the local community or to compete nationally.
	I should highlight here the PRA’s consultation on an initial capital exemption for some small specialist banks. The proposed exemption would allow some banks to gain authorisation with minimum capital of as little as £1 million, and to do so much more quickly than has ever been the case in the past. These are not small changes. Within the narrow world of bank authorisation, these are revolutionary changes which will make it much easier for new entrants to come forward. There have been some extremely successful new entrants. Metro Bank is one of the most successful and I suspect that its competitors consider that it is being disruptive by making a number of changes in the way it does banking which will affect the whole system, in many cases for the better.
	The actions that we have already taken will be supplemented by what we are doing in the Bill. We are creating a new payments regulator to ensure fair and transparent access for new and smaller banks to the payment systems. We shall discuss that later today. The Government have announced that they will ask the new payments systems regulator to look at the case for and against introducing full account portability as an early priority, as well as the case for requiring the big banks to give up, in whole or part, ownership of the payments systems.
	We are giving the PRA a secondary competition objective to strengthen its role in ensuring that we have competitive banking markets. We will provide the FCA with further competition powers so that it has even more appropriate tools in that area.
	As to the OFT, it has brought forward its investigation into SME banking and the competition issues affecting these markets. This is arguably the most contentious area in terms of the lack of appropriate products and volume for that market. The study is part of its ongoing programme of work to investigate concerns over competition in banking and to inform the decision on whether key banking markets should be referred to the Competition Commission for a formal market investigation. In January it reported on its review of the personal current account market, so it is not true to say that no work is being done on looking at competition on current accounts.
	The review raised significant concerns over concentration levels. However, it concluded that the important changes being implemented, such as the ring-fence and the new account switching service, meant that market referral was not appropriate at this time.
	The OFT aims to conclude its programme of work by 2015 and will make a decision then as to whether a market referral to the Competition Commission is needed. In consideration of the significant measures currently being implemented to improve competition, along with the importance of allowing the OFT to complete its current investigations, I hope that the noble Lord, Lord Eatwell, will feel that his Amendment 102 is not necessary and will not seek to press it.
	Turning now to Amendment 43, I have already detailed the extensive action the Government are taking to improve competition.

Lord Eatwell: I wonder whether the Minister will allow me to comment on the series of measures he just outlined. All are worthy in their little way, but will he acknowledge that the Government have actually rejected the commission’s recommendation that there be,
	“a full public consultation on the extent of competition and its impact on consumers”.?
	This is what the Government are not giving.

Lord Newby: The Government are saying that the OFT is in the process of undertaking a series of pieces of work. We believe that the appropriate way forward is for it to complete that work and to decide whether it wishes to make a referral. We think that that is a sensible approach; it is already in train and we think it should reach its logical conclusion.
	To help increase diversity in business lending, the Government have introduced several important schemes, which include the business finance partnership and the introduction of the business bank. The Government are promoting alternative finance to boost overall lending through investments and various innovative non-bank channels, including two peer-to-peer firms, Funding Circle and Zopa, as part of a small business programme. Peer-to-peer platforms enable people to lend money directly to businesses and consumers; they can therefore offer a more effective way for businesses to access finance. They are certainly disrupted in terms of the way in which finance is going directly into many small businesses.
	The business bank is drawing together existing government initiatives under one roof and deploying £1 billion of capital to address gaps in the supply of finance to SMEs. So far, £75 million is being invested in venture capital and £300 million in new sources of lending. The Government are also taking action to support local banking—for example, through a credit union expansion project which includes a £38 million funding package from the Department for Work and Pensions.
	Community development finance institutions are also providing loans in support of those struggling to access finance from the commercial banks. The regional growth fund is supporting their work through £60 million of wholesale funding and the Government also provide tax relief worth up to 25% on investments. Both credit unions and CDFIs typically operate in quite a tightly defined geographic area and have that special focus.
	At national level, both RBS and Lloyds are already in the process of divesting part of their UK banking businesses as a requirement of EU state aid rules, creating new challenger banks. The divestments are part of a package designed to improve competition in the banking sector. The Government have taken the first step to return Lloyds to the private sector and are actively considering options for further share sales. The reintroduction of the TSB brand on the high street is a major step forward for retail competition. This action is further evidence of the Government’s stated aim not to be a permanent investor in the UK banking sector. This is an important step in further normalising the sector and continuing the process of removing government from the extraordinary measures taken during the crisis.
	For RBS, the Government are already investigating the case for creating a so-called “good bank/bad bank” split. We will report the findings of this review shortly, later in the autumn. We do not believe that the case for breaking the core operations of any bank in which the Government have a stake into regional entities meets the objectives of maximising the bank’s ability to support the British economy, getting the best value for the taxpayer while facilitating a return to private ownership. The cost of any reorganisation would be attributable to the banks, and, as a result, to the taxpayer. In addition, the time required to execute such a reorganisation would be lengthy, further delaying the Government’s ability to return the banks to private ownership. As a result, the amendment would run directly contrary to the Government’s stated objectives.
	This does not, however, mean that we do not see a role for regionally or subregionally focused banks. I have been impressed, for example, by the work of the Cambridge & Counties Bank, which is based in Leicester and is using its local expertise to support SMEs in Leicester and the broader East Midlands region. Its capital comes from a combination of a Cambridge college and a local authority pension fund, which seems to me a model that could with benefit be replicated elsewhere.
	I was extremely interested to hear from the noble Baroness, Lady Liddell, about the success of the Airdrie Savings Bank. I am happy to work with officials to see how that bank is faring and whether anything that the Government are doing is making its life unnecessarily difficult.
	The challenge, however—looking at that model on the one hand, and on the other saying that in Germany there are a lot of regionally successful banks—is that that is not where we are starting from now. It is very difficult for government to change a culture single-handedly. If banks such as Cambridge & Counties are successful and other people see that they are, we will see more regional banks, but I do not think that government either can or should try to impose a new overall structure on the banking sector against competitive forces and what people in the banking sector want to do.
	I do, however, welcome the news that Santander wants to regionalise decision-making. RBS has for some time been trying to re-educate its SME bank managers about the virtues of relationship banking. It is amazing that that was lost, but the penny has dropped, and I very much hope that the statement by Santander is part of a broader process to push down decision-making to regional and local levels.
	I hope that I have been able to persuade my noble friend that the Government have considerable sympathy with his amendment, but that much is already happening to bring greater diversity into the banking sector. Frankly, the pace of change—the number of new entrants, the change in the way that the system is operating and the way that people are doing banking—is quicker than at any previous point in our lifetime. I hope that, on that basis, he will feel able to withdraw his amendment.

Lord Higgins: My Lords, my noble friend seems to be implying that the study by the OFT is in some sense a substitute for the amendment. In that context, one is bound to ask what the OFT has been doing on this for the past 25 years. Is that what he is saying and, if so, when are we likely to have a decision on whether there should be a referral? Is there any possibility that the OFT report would give us the kind of information asked for in the amendment?

Lord Newby: My Lords, as I said, the OFT is undertaking its work and expects to have formed a view by 2015 about whether to have a broader referral. I think that at one level everybody finds it easy to criticise the failures of virtually every regulatory body in the past. It is unfair to suggest that the OFT has learnt no lessons from the past 25 years in the way that it undertakes its work. The Government have considerable confidence in the work that it is now doing.

Lord McFall of Alcluith: My Lords, the noble Lord, Lord Higgins, has a real point here. If we look at the timeline with PPI, consumer groups were complaining about it in the late 1990s. There was a supercomplaint in 2005. The Treasury Committee highlighted it in 2003. The OFT and the Competition Commission looked into it. It was 2012-13 before something was sorted out. That is a generation. We are making these points against the background of a sclerotic system and we really need a commitment from the Government that they are considering the matter. Otherwise, we will be back here in 10 or 15 years’ time and nothing whatever will have moved.

Lord Newby: My Lords, everybody would have a great deal of sympathy with the general point that the system has worked very slowly in the past. The FSA was extremely slow in many ways, but one of the features of the way the new system works is that a greater degree of urgency is injected. I give as an example the document on consumer credit published by the FCA last week. The FCA does not take responsibility for consumer credit until next April, but well in advance of that date it has produced a comprehensive plan of how it wants to proceed. This is much more rigorous than anything we have seen in that area in the past. To a considerable extent, the regulators have learnt lessons about the need to move with all due deliberation, yet also with due speed.

Lord Flight: My Lords, I ask the noble Lord to look at the other side of the balance sheet. I could not find the extract, but it is from a key government website and says that most organisations within the public sector are obliged to bank with either RBS or Citibank. This means that new banks cannot solicit their business. I am not clear how that came about or whether it is even in accordance with EU requirements, but a large part of the economy in the public sector is simply being dictated to on who it can bank with.

Lord Higgins: My Lords, my noble friend says that people have been very slow in the past, but he is now telling us that the OFT will decide whether to make a referral—not actually do anything, just make a referral—by 2015. Does it really take from now to 2015 to decide whether the banks need to be referred?

Lord Phillips of Sudbury: My Lords, if I may, I would add that my noble friend talked of being too slow, but in this debate several noble Lords have made the point that it is not slowness which has afflicted the large clearing banks but immorality. Whether you are talking about trying to manipulate the LIBOR rate or PPI or identity insurance—you can go on and on—there is the sheer scale, impersonality and lack of relationship or any sort of customer allegiance. I fear that these have rotted the foundations of so many of these colossal banks. Does he not therefore understand that the gist of these amendments is to try to replace that state of affairs?

Lord Newby: My Lords, as far as immorality is concerned, later we will deal with amendments on the reversal of the burden of proof and on the new
	criminal offence which will be available should banks behave in a grossly immoral way. That is the way to deal with the narrow point my noble friend makes. The whole question of the culture of the banks is addressed only partially in the legislation because it is by definition a cultural issue. We are taking very significant steps to regulate individual senior managers and hold them to account for what they do in a way that has never been the case in the past. Again, that is quite a revolutionary change. Regarding the specific point raised by the noble Lord, Lord Flight, I believe that local authorities at least can bank wherever they choose, but I will look into the point and write to him. I simply do not know what the position is.

Lord Sharkey: My Lords, I will be brief because I see that I am holding back an avalanche of 158 government amendments. There have been a lot of strong, very well argued and diverse views, but there have also been some general themes. For example, there was a feeling that getting close to the customer is absolutely critical. I entirely agree with that. In fact, I fear that without this there is little chance of reforming the banking culture at all. There also seems to have been a general desire in the Chamber to discuss again the issues raised and to see whether on Report there could be a way of advancing some of the arguments put forward today. In the mean time, I beg leave to withdraw the amendment.
	Amendment 43 withdrawn.
	Clauses 9 to 12 agreed.
	Amendment 44
	 Moved by Lord Newby
	44: After Clause 12, insert the following new Clause—
	“Part 3Bail-in stabilisation option
	Bail-in stabilisation option
	(1) Schedule (Bail-in stabilisation option) (which contains amendments relating to a new stabilisation option in Part 1 of the Banking Act 2009) has effect.
	(2) The Treasury may by order make any provision they consider appropriate in consequence of the application to building societies of the amendments made by this Part.
	(3) An order may, in particular, amend section 84 of the Banking Act 2009, or amend or modify the effect of any other enactment to which this subsection applies.
	(4) Subsection (3) applies to any enactment (including a fiscal enactment) passed or made—
	(a) before the passing of this Act, or
	(b) on or before the last day of the Session in which this Act is passed.
	(5) In this section “building society” has the same meaning as in section 84 of the Banking Act 2009.”

Lord Newby: My Lords, this clause and the new schedule to the Bill in Amendment 105 have the effect of amending the Banking Act 2009 to provide the Bank of England with a new stabilisation option—the bail-in option. Bail-in involves shareholders of a failing bank being divested of their shares or having their holdings severely diluted and creditors of the bank
	having their claims cancelled, reduced or deferred to the extent necessary to restore the bank to financial viability. During the financial crisis it was not possible simply to allow banks which failed to enter insolvency, as other companies do when they fail. This is because of how interconnected the banking system is and because of the need to protect the banks’ customers by ensuring that they could continue to access essential banking services. This protection came at a very high cost to the taxpayer. These new powers will provide one solution to that problem by offering an alternative to insolvency which exposes shareholders and creditors to the losses of the bank, while enabling the bank to continue to operate as a going concern. This will help to ensure that taxpayers are never again required to bear all the costs of resolving failing banks.
	It has long been the Government’s policy to develop such bail-in powers. This was an important strand of the Government’s response to the recommendations of the Independent Commission on Banking. The UK has also been at the forefront of the international development of bail-in. Along with other G20 countries, we endorsed the Financial Stability Board’s recommendation on bail-in in November 2011. We have also worked hard at ensuring that the EU would agree a feasible and credible bail-in tool, and have made substantial progress recently in this area. We believe that EU agreement on a common resolution recovery directive is near and, for this reason, the Government are now confident enough about the content of the directive to be able to bring forward bail-in powers through this Bill.
	On the details of the amendments, paragraph 1 of the schedule introduces the bail-in option as an additional stabilisation option in the Banking Act 2009. When the bail-in option is deployed, the Bank of England can cancel, reduce or defer liabilities of the bank for the purposes of recapitalising it and restoring it to viability. It may also transfer some or all of the bank’s securities to a bail-in administrator to hold securities of the bank, or to perform other tasks as specified by the Bank of England, on a temporary basis. In any event, shares held by the original shareholders would be expected to be transferred or severely diluted in the course of resolution.
	Paragraph 3 of the schedule sets out the conditions for use of the bail-in option. These are that the bank is failing or is likely to fail to satisfy the conditions for authorisation, that no action is likely to be taken to restore the bank to compliance and that the exercise of the power is necessary having regard to the public interest in: the stability of financial systems in the UK; the maintenance of public confidence in the stability of those systems; the protection of depositors; or the protection of any client assets that may be affected.
	Paragraph 4 defines the power to make a special bail-in provision cancelling, modifying or changing the form of a liability of the bank in resolution. This power can be exercised only for the purpose of or in connection with cancelling, reducing or deferring a liability of the bank in question. Proposed new Section 48B also specifies a set of liabilities that are excluded from the power to make special bail-in provision. These liabilities are excluded for one of two main
	reasons: either because they would not have been exposed to losses in insolvency or because exercising the bail-in powers on them would be likely to impede the resolution of the firm or create wider market instability. This includes deposits protected by the Financial Services Compensation Scheme or similar overseas deposit guarantee schemes, liabilities to the extent that they are secured, client assets, short-term liabilities owed to certain financial institutions outside the affected firm’s group, certain liabilities arising in respect of central counterparties and settlement systems, and certain debts owed to employees and trade creditors. The Treasury has the power to amend this list by order.
	When the Bank of England exercises its special powers to bail in liabilities of a failing bank, it must make a report to the Chancellor explaining why it has done so. A bail-in should in general be done in a way that respects the treatment that creditors would have received if the bank had been allowed to fail and enter insolvency. In terms of economic effects, this means that the failing bank’s shareholders would be divested of their shares, or otherwise have their claims severely diluted, and subordinated debt holders would be exposed to losses. Senior debt holders would generally be exposed to losses only after subordinated debt holders. It would also generally be the case that creditors in the same class would bear losses on an equal footing.
	In common with the existing stabilisation options in the Banking Act, the Bank of England may depart from these general principles where appropriate. If the Bank of England does so in exercising the special bail-in powers, this report could explain the reasons for doing so. The Chancellor will lay a copy of any such report before Parliament.
	New Section 48H gives the Bank of England the power to require a bail-in administrator or one or more of the directors of the bank to draw up a business plan that includes an assessment of the factors that led to the failure of the firm and outlines a plan for addressing these problems. The plan must be approved by the Bank of England after consulting the PRA and the FCA and may require changes to be made before approving it.
	New Section 48L specifies further powers available to the Bank of England, including powers to modify and convert securities that fall within the scope of the bail-in powers. New Section 48N enables the Bank of England to remove a director from a bank in resolution, or to terminate or vary a director’s contract. It also allows the bank to appoint new directors. New Section 48O enables the Bank of England to issue directions to directors of the bank.
	New Section 48P gives the Treasury the power to make an order relating to the treatment of protected financial arrangements in a bail-in. Protected arrangements are defined as security interests, title-transfer collateral arrangements, and set-off and netting arrangements. These arrangements are entered into by the counterparties in order to minimise the risks associated with the financial instruments. Therefore it is right that these arrangements are respected to the extent possible while pursuing the special resolution objectives. This is analogous to the existing power for the Treasury
	under the Banking Act 2009 to specify protections in the case of transfers of some but not all of the business of the bank under resolution.
	The Treasury will be required to put in place compensation arrangements for affected shareholders and creditors following an application of the bail-in powers. These will include a no-creditor-worse-off safeguard that broadly provides that no shareholder or creditor should be left worse off as a result of the exercise of the bail-in powers than they would have if the bank had simply failed and entered insolvency. In addition, the Bank of England may exercise the bail-in option in respect of a banking group company if certain conditions are met.
	First, the authorities must be satisfied that a bank in the same group meets the conditions for resolution. Secondly, the authorities must be satisfied that acting only in respect of the bank itself is not sufficient to achieve the special resolution objectives. The actions should seek to minimise the effects of the exercise of the power in relation to group companies on other undertakings in the group. It should only be to the extent necessary in order to achieve the resolution objectives.
	I apologise for setting out the details of these provisions in some detail, but they are relatively new to your Lordships’ House and one of the essential components of the menu of provisions contained in the Bill to give a safer and more secure banking system. I commend the amendments to the House.

Lord Eatwell: My Lords, we can forgive the noble Lord, Lord Newby, for taking some time to introduce the amendment and schedule; I believe that they are by themselves longer than the original Bill. It has been one of the significant matters that those of us who wish to comment on this legislation have had to digest.
	An issue that the noble Lord did not address, which has been a major concern in the academic literature that has been looking at the issue of bail-ins and resolution regimes, is that the bail-in regime may in itself create contagion and systemic risk. One has to consider that well over 50% of the liabilities of a typical large bank consist of some form of interbank loans and investments. Therefore, by bailing in one particular bank you are spreading the contagion to the banks that will consequently be bailed in. Could the Minister brief us on the Government’s thinking on that issue?
	I have a number of questions on particular points about the bail-in schedule, and I will try to address them in a reasonably logical direction. The first point is that there seems to be no satisfactory transition arrangements for those who might be bailed in. In other words, people who have purchased financial instruments or made investments in advance of this legislation will, as I understand it, subsequently be at risk from the legislation even though, at the time then they made the investment, that risk did not exist. That seems unreasonable. Would it not be appropriate for them to have some grandfathering that would allow them to escape this risk if they had acquired the instrument in advance?
	On the other hand, so to speak—of course, economists always like to be two-handed in these respects; I believe it was President Truman who asked to have one-armed economists—the principle of no less favourable treatment is equally unreasonable. If an individual purchases a financial instrument knowing the nature of the risk to which he or she is exposed, why should they then be protected by the principle of no less favourable treatment from bail-in or insolvency? They are aware of the risk and should surely take responsibility for it.
	On the theme of the conditions for bail-in, the Minister noted that liabilities representing protected deposits were excluded liabilities. That means that ordinary people with bank accounts with sums in them that are below the Financial Services Compensation Scheme limit are appropriately protected. However, now and again ordinary people will typically go way over that limit, even people who usually have quite modest accounts. For example, in the process of property purchase and sale one sometimes has peculiar large deposits in one’s bank account for a short period, or when receiving a lump sum in connection with a pension scheme you typically have a peculiarly large deposit for a short period. Will these people be at risk? The schedule suggests that they would be. What measures are available to ensure that they would not?
	The next point I wish to turn to was raised by the Minister with respect to banking groups. The bail-in option refers to a stabilisation power in respect of a “banking group company”. That suggests that they might be companies outside the ring-fence. Why is this necessary outwith the ring-fence if the ring-fence is deemed to work? If the ring-fence is protecting depositors and the maintenance of financial services in the way that the Government have argued, why are these measures necessary outside the ring-fence? Perhaps the Minister will enlighten us.
	To move on to a couple of issues that are less serious but might become important, the schedule reads:
	“A deposit is ‘protected’ so far as it is covered by a scheme which … operates outside the United Kingdom, and … is comparable to the Financial Services Compensation Scheme”.
	What does “comparable” mean? Does it mean that it is of the same ilk or that it is of the same scale? There is a variety of such schemes operating around the European Union and in other jurisdictions closely associated with this country that, for example, are quite different in scale even though they may be of the same ilk. So what does “comparable” actually mean?
	As the noble Lord pointed out, the Treasury has the ability to amend by order the crucial terms in Sections 48C and 48D. I asked the noble Lord, Lord Deighton, when we considered the earlier part of the ring-fence legislation, what position the Government were going to take on the recommendation from the Delegated Powers and Regulatory Reform Committee for the enhanced scrutiny of certain affirmative procedure orders. The Delegated Powers and Regulatory Reform Committee proposed an amendment; I asked Lord Deighton what the Government’s attitude was to it, and I was promised an answer. I hope that the noble Lord can give us an answer today.

Lord Turnbull: My Lords, these clauses exemplify the maxim, “be careful what you wish for”. The parliamentary commission recommended that the UK Government should prepare a UK version of the bail-in scheme being negotiated in the EU as a precaution against the possibility that the EU scheme could be delayed. One only has to look at the Solvency II directive to know how long these things can take. We have a slightly different explanation today, which is that we are sufficiently close to finalising the EU scheme that it is safe to proceed to legislate for it. In other words, that implies that this is a substantive scheme, not an interim scheme that might in due course be replaced by an EU scheme. I wonder if the Minister could clarify this.
	My only other remark is to say that I very much support the remarks that the noble Lord, Lord Eatwell, has made about people who, once or twice in a lifetime, have a very large sum in their accounts. The other example that could have been quoted is people who sell a business before they retire.

Lord Flight: My Lords, I can see something like a bail-in scheme working satisfactorily with regard to a bank the size of the Co-op Bank, for example, and indeed the proposals to bondholders are effectively a do-it-yourself bail-in scheme. However, in the unlikely event that it was necessary, if a bank as large as Lloyds Bank were in trouble, I find it difficult to believe that the situation could be resolved by a bail-in scheme. This is in part for the reasons that others have given, that the knock-on effects to the rest of the banking system are too large. So while the bail-in system makes great sense, I do not think it can be a sort of universal solvent to the possible need for taxpayer money to be used when huge banks are in trouble, or for so long as we have huge banks.

Lord Blackwell: My Lords, in asking Parliament to approve these powers, I wonder if my noble friend could set out what protection he believes is built into this legislation for the inappropriate use of these powers. I understand why having a regime in place that allows a speedy resolution to be enacted is desirable. If that is to come about, it needs to happen very quickly and efficiently when the circumstances call for it. The draft legislation sets out the conditions under which those powers might be exercised. The new Section 8A of Schedule 2 talks about appropriate conditions protecting,
	“the stability of the financial systems … the maintenance of public confidence … the protection of depositors … the protection of client assets”,
	but those conditions are obviously subject to judgment and interpretation, and it would be helpful to understand those parties who might be affected by the exercise of those powers, not least of course shareholders and bondholders, and whether there is any protection for them against the inappropriate use of those powers without getting into some lengthy and time-delaying process of judicial review.

Lord Higgins: My Lords, these clauses give the Bank of England very considerable powers and responsibilities, which we will need to consider very carefully; we are going somewhat into uncharted waters.
	At a purely quantitative level, will my noble friend, if not today then on some other occasion, indicate how the system would have worked if it had been applicable in the recent financial crisis? That is to say, in the case of the bailed-out banks, would it have been sufficient to mean that there would have been no charge on the taxpayer, or is it likely that there would still have been a charge?
	We will consider in particular the question of the hierarchy of debts. The briefs that we have had from the Treasury have been very helpful, but it might be helpful if my noble friend could in some way or another give us some idea of how the new hierarchy is now likely to work or, to avoid any doubt, perhaps to write the hierarchy into the legislation.
	Other points give me some cause for concern, some of which have been made by the noble Lord on the opposition Front Bench. It seems that there is still a considerable risk of contagion if one suddenly bails in a particular bank, but the people who are its creditors will have repercussions elsewhere in the banking system. I am not entirely clear to what extent the Government have taken that particular risk of contagion into consideration. These are quite complicated matters, and we look forward with interest to the Minister’s reply.

Lord Newby: My Lords, I thank the noble Lords who have spoken on these extremely technical points. A number of the questions were themselves extremely technical, so if I do not answer them fully now I will of course write to noble Lords.
	The first question the noble Lord, Lord Eatwell, raised, was the question of contagion. My first point here is a general one. The markets now expect the bail-in powers to be one of the options available if banks get into difficulty. They seem generally to accept this as an option, and they are adjusting their own activities to the extent that they feel that is necessary in recognition that this will now be part of the environment in which they work. However, in an individual case, if the Bank felt that there was a risk to financial stability by exercising the full bail-in option, which covers all the assets or liabilities of the bank, it could decide not to bail in all of them but to be selective in a manner that would reduce the possibility of contagion.
	In addition, in circumstances where a bank is going under, if you do not go down this other route, virtually whatever else you do with it, there is a risk of contagion. That is one of the considerations that will be in the mind of the Bank of England. Of course, if the Bank felt that there was a risk to the whole system if a particular bank went down, it has the powers under the Banking Act to nationalise it, which is another way of protecting the system and the stability of the system. This is another possible approach, but under the Banking Act it is now one of only four possible ways of dealing with the problem of a failing bank.
	I am sorry if my answers are slightly out of order, but the noble Lord asked what the word “comparable” meant when we talked about other countries’ depositor protection. As he knows, all EU member states have depositor guarantee schemes with a common limit, and all those schemes will be considered comparable.
	Therefore it covers any schemes that will ensure small depositors in the event that the bank becomes insolvent and unable to pay its debts, in the same way as our FCA.

Lord Eatwell: I was thinking of the Crown Dependencies.

Lord Newby: I had not realised that the noble Lord, Lord Eatwell, was thinking of the Crown Dependencies. I will write to him about that.
	The noble Lord asked whether the concept of no less favourable treatment was appropriate. This concept relates only to the insolvency counterfactual. It is reasonable that an investor should be no worse off due to an action of the authorities than in an insolvency. That is the option that might be facing investors if the bail-in was not taking place.
	The noble Lord asked about temporarily high balances. This is an issue that we have debated over the years. As far as bail-in is concerned, the bank will have discretion not to bail in certain liabilities. In terms of the general issue about temporarily high balances, this is being pursued within the context of the EU. There is a very widespread recognition that it would be desirable to get protection for people who have such temporary high balances.
	The noble Lord asked about transitional arrangements. The issue of bail-in has been debated at international level for some time. Markets know that bail-in is now an acceptable, and indeed a leading, tool for dealing with large banks in the European fora. We have agreed that there should be no transitional agreements, especially as the counterfactual would be insolvency.
	The noble Lord asked about our response to the Select Committee. My noble friend Lord Deighton, as the noble Lord knows, is in China this week, so he will be replying formally when he returns. But the approach that the Treasury has taken so far in terms of working with parliamentarians who have a close interest in these matters has been to circulate draft secondary legislation at the point at which it has gone out for wider consultation. The current consultation exercise on the big draft statutory instruments under this Bill has, I think, now closed. We are drawing up a response to all the stakeholders who have made comments and the intention is that at that point the Treasury will directly contact noble Lords who have expressed an interest so that we can discuss where we have got to and consider any suggestions that noble Lords might have on the secondary legislation.
	My view, having looked at it, is that this is highly technical legislation and the best way of getting an input is to have a conversation around it. The Treasury is very open at this point to any suggestions from your Lordships, or indeed Members of another place, in terms of the details of the secondary legislation. They are not set in stone. We are trying to get the best outcome. We think that that more discursive approach in the context of these highly technical instruments is the best way of getting the maximum positive involvement with parliamentarians in the process. As I said, my noble friend Lord Deighton will be writing to the noble Baroness, Lady Thomas of Winchester, about that.
	The noble Lord, Lord Higgins, asked whether bail-in would mean that taxpayers would not have had to make any contribution. It is difficult, if not impossible, to say definitively since we do not know how much could have been bailed in. What is clear is that we would have substantially reduced any government contribution. Loss-absorbing capacity provisions in the Bill will further strengthen that concept. The ICB said that the 17% PLAC proposals would have been sufficient to deal with the problem last time in all but the most extreme cases.
	The noble Lord, Lord Higgins, asked about the creditor hierarchy and whether it will be stated in the Bill. We have not stated it in the Bill, but we will be working on the statutory code of practice under the Act when it is enacted. The aim is that it will be set out more fully there.
	The noble Lord, Lord Blackwell, asked what protection there was against inappropriate use of the powers by the Bank of England. The conditions before which the Bank can intervene are pretty stringent; they are that the bank is failing or likely to fail and that it is in the public interest to do so. If the Bank operated vexatiously or against the public interest, that would be an inappropriate use of its powers—but so it would if it acted in that manner under any other of its powers. Our view is that the conditions are clear enough and give the Bank sufficiently clear steer that we are reasonably confident that the problem that the noble Lord anticipated would not arise in practice.
	The noble Lord, Lord Flight, asked whether the bail-in could work for big international banks. We believe that it could; the UK authorities are working with international counterparts to put in place resolution plans for large banks to ensure that the tool can be applied effectively. We see bail-in as being the leading tool for such banks.
	The noble Lord, Lord Eatwell, asked whether bail-in was necessary for all banks, including those outside the ring-fence. The truth is, obviously, that all banks can encounter difficulties, not just retail banks. We believe it appropriate that the Bank of England has the tool available for dealing with non-retail banks as well as retail banks, which this provision would do.
	I am not sure that I have answered every last question that I have been asked. To the extent that I have not, I will write to noble Lords.

Lord Eatwell: I just take up the Minister on that last point. Surely one of the key arguments about the ring-fence is that there is an implicit guarantee from the public authorities not to allow institutions within the ring-fence to fail. That implicit guarantee is worth a lot of money to those banks that have been too big to fail. Surely the whole point about the ring-fence is that those outwith it would not benefit from that form of public continuity guarantee. But is the noble Lord saying that the Government wish to retain such measures, which would allow them to implement such continuity guarantees?

Lord Higgins: I come in on the same point, if I may, because my reaction was the same as the noble Lord who has just spoken. Am I right in thinking that all
	these bail-in provisions apply only to ring-fenced banks? Is that the case, or not, or are they extended to banks that are not within the ring-fence? Perhaps the Minister could make absolutely clear what the position is, because it was not clear earlier.

Lord Lawson of Blaby: The noble Lord, Lord Eatwell, said something which I think is profoundly wrong, but I can understand why he said it. Will my noble friend the Minister make it absolutely clear that it is not the position of Her Majesty’s Government, and it is not the purpose of this Bill, to ensure that no ring-fenced bank will ever be allowed to fail? That is not the position; it must not be the position and I do not believe that it is the Government’s intention.

Lord Newby: My Lords, I can confirm what the noble Lord, Lord Lawson says. It is not the intention to have a situation where it is impossible for a ring-fenced bank to fail. What we are doing, particularly through the guarantee scheme, is ensuring that ordinary depositors are protected in those circumstances. Through these potential provisions we hope to ensure that there will be continuity of activity, which might not be the case without them.
	In terms of the scope of these provisions, they are the fourth of what are now four options in the Banking Act for dealing with a bank that is in danger of failing. One is sale to another bank; one is the bridge bank and the other is nationalisation. Those measures apply to all banks covered by that legislation. I believe that that extends the measures beyond the ring-fenced banks.

Lord Higgins: I am sorry but I am still not clear. Could bail-in provisions be applied by the Bank of England to banks which are not within the ring-fence?

Lord Newby: That is what I was attempting unsuccessfully to say.
	Amendment 44 agreed.
	Amendment 45
	 Moved by Lord Newby
	45: After Clause 12, insert the following new Clause—
	“Part 4Conduct of persons working in financial services sector
	Functions for which approval is required
	(1) Section 59 of FSMA 2000 (approval for particular arrangements) is amended as follows.
	(2) Omit subsection (5).
	(3) For subsection (6) substitute—
	“(6) The PRA may specify a description of function under subsection (3)(a) only if, in relation to the carrying on of a regulated activity by a PRA-authorised person, it is satisfied that the function is a senior management function as defined in section 59ZA.”
	(4) After subsection (6A) (inserted by section 5 above) insert—
	“(6B) If—
	(a) a function of a description specified in rules made by the FCA under subsection (3)(a) or (b) is a controlled function in relation to the carrying on of a regulated activity by a bank, and
	(b) the FCA is satisfied that, in relation to the carrying on of a regulated activity by a bank, the function is a senior management function as defined in section 59ZA,
	the FCA must designate the function in the rules as a senior management function.
	(6C) If a function of a description specified in rules made by the PRA under subsection (3)(a) is a controlled function in relation to the carrying on of a regulated activity by a bank, the PRA must designate the function in the rules as a senior management function.”
	(5) Omit subsections (7) to (7B) and (11).”

Lord Newby: My Lords, we now turn to the government amendments which implement another important part of the recommendations of the Parliamentary Commission on Banking Standards on senior persons and banking standards rules. This group also contains a number of amendments to the amendments the Government have tabled. I begin by explaining how the government amendments will deliver the goal of improving standards of conduct in banking.
	The Parliamentary Commission on Banking Standards concluded that the current system for approving those in senior positions in banks—the approved persons regime—had failed. It saw it as overly complex and unable to ensure that individual responsibilities were adequately defined or that clear expectations were set for those holding key roles. The commission’s central recommendation in this area is for the creation of a senior persons regime applying to senior bankers. The regime for senior managers in banks will have the following features. It will reverse the burden of proof so that senior bankers will have to show that they did what was reasonable when a bank fails to comply with regulatory requirements in their area of responsibility, or face regulatory action for misconduct. It will have mandatory statements of responsibility, so that whenever someone is a candidate to be a senior manager in a bank, the bank will have to set out clearly what aspects of the bank’s business they will be responsible for. There will be powers for the regulators to make conduct rules for senior managers in banks instead of the old system of statements of principles supported by codes of practice. There will be a requirement that the register kept by the FCA must state who is a senior manager in a bank and give details of regulatory action taken against them.
	The new regime for senior managers will also retain the tools which the regulators have under the existing approved persons regime. The regulators will also retain their tough powers under FSMA to impose unlimited fines on, or publish notices of censure about, senior managers in banks. It may sometimes still be appropriate for the regulators to approve people to perform functions that are not senior management functions but which still involve important responsibilities. The Government have therefore chosen to retain the power for the regulator to pre-approve individuals to perform functions outside the senior managers regime. It is for the regulators to determine what functions, if any, should be subject to pre-approval outside the senior managers regime. I am confident that noble Lords will agree that retaining this power is a sensible safeguard at a time when concerns about individual standards in financial services remain acute.
	In addition to the regime for bank senior managers, the commission also recommended the introduction of a standards regime that would apply to a wider class of individuals who work in banks. The Government have therefore provided the regulators with a new power to make conduct rules for anyone who is employed by a bank, even if they are not a senior manager or other approved person. This is an extension of regulatory power in relation to individuals, and gives the regulators the power to impose a single set of banking standards rules for all who work in banks. Employees of banks could face disciplinary action if they breach these standards rules or if they are knowingly concerned in regulatory breaches by the bank. The regulators will not be compelled to make conduct rules. They will be able, quite properly, to exercise their supervisory judgment to determine who in a bank should be subject to rules, and what standards to impose.
	Finally, the commission also recommended including provision for time-limited and conditional approvals of senior bankers, and longer time limits for the regulators to take disciplinary action against individuals. The Government also accepted these recommendations. Accordingly, the Bill will allow the regulator to grant approval to perform senior management functions in banks subject to conditions, as well as to take steps to vary an approval it has already given, for example by imposing new conditions.
	Perhaps I may respond to the amendments tabled by the noble Lords, Lord Brennan, Lord McFall and Lord Watson. Amendments 46A, 46B and 47A seek to ensure that responsibility for preventing money laundering and other financial crime is also a senior management function. The Government agree with concerns that underpin these amendments. UK banks should uphold the highest standards in preventing criminal activity, and not facilitate it. Where there is evidence that banks have not lived up to those standards, the people at the top should be held to account. I reassure noble Lords that the new regime for senior managers will deliver precisely that accountability in relation to financial crime. Therefore, while we can all support the result that the noble Lords want to achieve, I can assure them that these amendments are unnecessary and there are no loopholes when it comes to such matters.
	I shall try to explain why. The definition of “senior” is quite comprehensive. It encompasses all aspects of the bank’s operations and would therefore include responsibility for aspects of a bank’s operations that are concerned with the prevention of financial crime, where those aspects could involve serious consequences for the bank, for business or other interests in the United Kingdom. The amendments could in fact have the unintended effect of requiring junior staff with specific duties in relation to financial crime to be treated as senior managers. That would run in the opposite direction to what the parliamentary commission intended, which was to focus on senior persons in charge of all aspects of the bank’s activities.
	Amendment 53A has two limbs. The first seeks to ensure the operational objectives that the FCA must consider when making rules of conduct for approved persons or bank employees. I can assure your Lordships that this part of that amendment is unnecessary. The reference to the operational objectives in new
	Section 64A(1) attracts all aspects of these objectives as defined in Sections 1B, 1C, 1D and 1E of FiSMA, without any additional words.
	The second limb of Amendment 53A, and Amendment 53B, would require both regulators to use their new powers to make rules of conduct specifically about the conduct of individuals responsible for preventing money laundering or other financial crime. I am not sure what these changes would add. The Fraud Act 2006, the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007 already bite on bank senior managers. Adding regulatory rules mandating compliance with statutory requirements would add little. Further, the regulators already have a power to make conduct rules applying to persons in banks who have responsibility for compliance with money laundering regulations and other laws creating financial crimes. We certainly expect the regulators to use this power to make rules about aspects of conduct that include ensuring that firms comply with their obligations relating to money laundering and preventing financial crime. However, to single these areas out in primary legislation adds little bite to the existing regime and is, we believe, unnecessary. I hope, therefore, that noble Lords will agree not to press those amendments.
	I also assure the noble Lords, Lord Brennan, Lord McFall and Lord Watson, that Amendment 54A is unnecessary. The reference to an application for approval in a context which refers to a person approved under Section 59 of FSMA already always means an application under Section 60. There is no other section under which such an application can be made. I hope, therefore, that the noble Lords will agree not to press their amendment.
	Finally, I turn to Amendment 100, tabled by the noble Lords, Lord Eatwell and Lord Tunnicliffe. This amendment is the same as an amendment brought forward on Report in another place. The government amendments, which implement the commission’s key recommendations, go much further than the noble Lords’ amendment, which would really just rename the existing approved persons regime as a “licensed persons regime”, and that is all. It would not deliver the real improvements sought by the parliamentary commission. I hope therefore that the noble Lords will agree not to press this amendment. I beg to move Amendment 45.

Lord Turnbull: My Lords, an important finding of the parliamentary commission was that the existing approved persons regime was flawed. After a debacle wiping billions of pounds off the value of shareholdings, requiring the state to inject billions of pounds into the industry and take huge financial exposures, and after several serious lapses of conduct, according to my researches one person has been fined and another person has negotiated an agreement not to practise.
	Our conclusion was that the APR operates mostly as an initial gateway to taking up a post, rather than serving as a system through which regulators can ensure the continuing exercise of responsibility at the most senior levels within banks. A major cause of this flaw was that responsibilities were ill defined and were not joined up, so that those at the top could claim they “didn’t know” or, “It wasn’t me”.
	We proposed a two-tier system: a senior persons regime, now called a senior managers regime, covering a meaningful chain of accountabilities, which we wanted to apply to all banks and holding companies operating in the UK; and, below that, a licensing regime, where no prior approval from the regulator would be required to employ anyone but banks would have to take responsibility for ensuring that those they did employ were properly qualified and trained and that they observed a code of conduct. This would apply to those who could seriously damage the bank or the bank’s reputation or harm a customer’s reputation.
	The parliamentary commission welcomes many of the Government’s proposals: defining the functions of senior management; requiring senior managers to have a statement of responsibilities; extending the limitation period for regulators to take enforcement action from three years to six; recording information on a person’s regulatory history so that a new employer can find out important details about whom they are recruiting; and the reversal of the burden of proof on whether a person is fit and proper.
	However, serious issues are left unresolved. Amendment 55 provides a definition of a bank to which the regime applies. I found it impossible for discover what the definition means. Does it meet the commission’s objective of covering all banks and holding companies operating in the UK? Would the Minister clarify what he means by “bank”? Could it be a ring-fenced bank, a non-ring-fenced entity conducting investment activities within a group, a whole group or a freestanding investment bank? In our view, the new senior managers regime should apply to all such entities. It would make a mockery of the scheme if, as I suspect may be the case, it applied only to banks taking deposits from the general public—that is, ring-fenced banks. It would be completely unacceptable if the regime did not apply, for example, to the senior managers overseeing the LIBOR traders, to those overseeing rogue traders such as the “London Whale”, to those overseeing the marketing of highly dubious packages of sliced and diced mortgages or to those engaged in the mis-selling of interest rate swaps. I very much hope that the Minister will be able to give us an answer today or address this between now and Report.
	There is no mention of the licensing regime, as the commission recommended. The Government said that they would ensure that regulators had the ability to take regulatory action against persons who were not senior persons—senior managers—or who were subject to prior regulatory approval. There is no mention of the licensing regime in the government amendment. They have come up with something rather different in Amendment 53 on the rules of conduct. It states:
	“If it appears … necessary or expedient for … advancing one or more of its operational objectives, the FCA may make rules about the conduct of the following persons”,
	and those persons could be any employee of the bank.
	I question whether that is the right answer. It is “may” rather than “must”, but I should have thought it essential that the FCA made the rules. Is it right that it should apply to all employees from purely backroom or administrative staff? In some ways, the government scheme goes wider but it is possibly too permissive.
	The final omission to highlight is that we propose that as well as an initial statement of responsibilities for each manager, there should be a handover note when people change jobs. We think that that is crucial because without it the chain of accountability breaks down, and when someone changes jobs we are back to, “I didn’t know”, or, “It wasn’t me”.

Viscount Trenchard: I intervene to ask the Minister to comment on some concerns that I have about this new “approved persons” or senior managers’ regime. First, I am worried that it will place British banks at a considerable disadvantage when they try to recruit the most talented managers available, not just from the United Kingdom but from around the world. Everybody agrees that bank management failed, so it is clear that the supervision of senior mangers needs to be enhanced and improved. For example, someone may be offered a job to work in Hong Kong, where he would probably pay less tax anyway, and he is unlikely to run the risk of being individually liable or culpable in that jurisdiction. I am not sure which other jurisdictions intend to introduce some kind of senior managers’ regime such as this.
	My second concern is that it seems to me that it is up to the manager to prove that he was not negligent in the exercise of his responsibilities. It is wrong that a senior manager should be deemed to be guilty unless he can prove his innocence. My third concern is that to increase the individual responsibilities of senior managers will have the unintended consequence of diminishing the responsibility of the board of directors as a whole, or the executive committee, risk committee, or whichever committee it may be. I have sat on an executive committee of a bank and often the business being discussed was not my responsibility, but I felt that I should understand what was going on and what the discussion was about because I was collectively responsible as a member of that committee. What worries me is that if it is very clear that the individual manager is going to be responsible, that effectively diminishes the responsibilities of the other members of the committee. It also diminishes the ability of the chief executive to change the responsibilities of his senior team based on his judgment, because it would be too complicated as each department or division would effectively be under the supervision of people outside the chief executive’s control. Can the Minister comment on these points as well?

Lord Flight: My Lords, I support the points made by the noble Viscount, Lord Trenchard. It is entirely understandable that people in this country are furious when they see individuals whom they blame for the system blowing up getting off scot free. On that front there are two points. First, if monetary policy is too lax for a long time, it will almost inevitably lead to bad lending by banks because, in some sense, banks are an automatic conduit of money. That really is what happened in the UK—because of the 2% inflation target, the Bank of England did not acknowledge that there was much higher inflation here off-set by imported deflation. We had easy money for far too long that filtered its way through into bad lending by banks. I remind the House that it was not investment banks but one or
	other form of bad lending—old-fashioned bad lending such as HBOS or buying CDO instruments from the US. It is not just individuals when a banking system blows up but the background as well.
	Secondly, I blame greatly the useless and negligent regulators as well. Why did they not spot the problem? Why should they get off scot free as well? They have a job. Their task is to keep an eye and make sure that the banking system is safe. If they fail completely in the discharging of that, to some extent they are as guilty as reckless people running banks badly. There is certainly an argument for saying that it would be desirable to bring in draconian powers against the executives of banks, harmonised internationally. I would be more comfortable if the same sort of measures applied in the US, Hong Kong and continental Europe.
	I want also to raise a slightly quirky point relating to anti money-laundering since anti money-laundering amendments have arisen. It seems to me that in some ways anti money-laundering has gone slightly over the top. Noble Lords may be aware that, following the large fine given by the US authorities to HSBC, HSBC has simply fired all its US clients in the UK. It has closed their accounts. It has said it no longer wants the risk of dealing with Americans. This has caused huge inconvenience to lots of Americans living in London. Going forward, I can see if other dangers present themselves to other banks, they may decide that it is not worth having a particular category of client.
	FATF, which as far as I can see is an unaccountable body laying down anti money-laundering rules, decided to blacklist a number of countries it felt were not practising anti money-laundering measures adequately. This led to some 30 embassies in the UK finding their bank accounts were likewise closed by HSBC. Some of the embassies found it virtually impossible to obtain a new bank account. If there was a branch of a bank from their country in this country they could go there but most other banks would not take them on as a client because they had been blacklisted by FATF. That again seemed slightly to fly in the face of embassies being approved by the Foreign and Commonwealth Office. Its reaction to this matter, I gather, was to express regret but not to do anything. I raised this with Andrew Bailey from the PRA. He felt it was extremely wrong and was quite surprised it had happened. This is a slightly different issue from where we are in the Bill but I would just say to the Minister that the Treasury needs to keep a little watch on what is going on in the anti money-laundering territory and its knock-on effects. I certainly think it is time that FATF, which is the top body laying down all this, were accountable to somebody. Both the Treasury and the Foreign and Commonwealth Office effectively said to me that they could not interfere with FATF—whatever it says goes.

Lord Brennan: My Lords, I speak to the amendments in my name and in those of the noble Lords, Lord McFall and Lord Watson. I declare an interest as chairman of Global Financial Integrity. It is a Washington-based think tank whose purpose is to promote measures designed to limit and eventually eradicate illicit financial flows around the world, in particular those from developing countries, which presently run into hundreds of millions of dollars. It is thought
	that they exceed the amount of aid that developed countries contribute to the countries out of which that money comes. I have experience as non-executive director of a banking operation and have advised banks professionally.
	Money-laundering, the proceeds of crime and the results of fraud represent a composite picture of international dishonesty, which has been and will continue to be practised wherever those responsible can find a banking system through which to channel the money. This is a fact of life. Many of our banks have such an international scope that they are a ready target for people wanting to use them for these illicit activities.
	I invite the noble Lord, Lord Flight, if he has not already read it, to look at the congressional report on HSBC. The chairman of HSBC described it as a very sobering read and concluded that bankers had lost the right to self-determination on such issues. When we come to the part of the Bill that controls how and what people in banks do so that this kind of dishonesty is not furthered, we should err on the side of authority. I invite those advising the Minister to avoid the legislative naiveté I dealt with at Second Reading, or in months to come the Bill will result in many hours of detailed inquiry and comment by lawyers advising banks. The first rule the lawyers will pick up is that that which is not stated in this Bill was neither meant nor intended. The Bill, if it is to restore public trust and avoid the kind of risks I have described in dishonest money transfers, should err on the side of authority.
	The amendments I am about to speak to were produced by independent counsel, invited to produce amendments that sought to meet the concerns I and my noble friends have. We played no part in the drafting of these amendments, so let us have a care. If a professional advising us as to the amendments produces this level of authority as being required, what do you think those seeking to protect themselves against it will do in terms of legal expense and inquiry?
	My final point before I turn to the amendments in detail is by way of introduction. The noble Lord, Lord Flight, in his usual reserved manner, said, “What about the reckless disregard of regulators in the past of their responsibilities?”. I do not think that we are entitled to repose into the hands of future regulators a degree of confidence that past experience shows would be misplaced. They should be told the scope of how they are to do things and what they are to do because we are talking about bank involvement in criminality.
	Amendments 46A and 46B go to the question of strengthening the senior management function—the senior person’s regime—so as to include, with precision and clarity, an obligation on the banking system specifically to deal with the risk of anti money-laundering and of dealing with the proceeds of crime or the results of fraud. There should be no legislative fault in precision and clarity when dealing with criminality.
	The amendments seek to ensure that the definition of “senior management function” should be seen to include those areas that I have just mentioned in terms of compliance. Those in banking must comply and must avoid the risk of non-compliance. The FCA, in specifying senior management functions, will require them to do things, including a minimum threshold for
	sums to be regulated. Is this too much? It was not thought to be too much in the United States, which has a far bigger banking system than ours. Would it run a risk of damaging our banks? It has not in the United States. It is ours that have suffered the penalties, not theirs. These amendments seek to establish a norm—not some Anglo-Saxon aberration—for proper cross-border behaviour in the banking world.
	Your Lordships will note that Amendment 46A uses the words, in proposed new paragraph (b)(iii),
	“related to or resulting from”.
	In other words, it gives a broad reach to responsibility. Amendment 46B makes specific reference to the statutes that have to be borne in mind. It is hardly a criticism to be met to say that people must obey the criminal law—of course they must. This statute—the Bill and the amendment—remind people in statutory wording of their civic obligation, as well as their professional obligation, to obey the law. It is designed to stop the defence of, “Nobody told me. It was not my job”. The two amendments are straightforward and build on the Government’s well deserved intention to improve the law.
	Turning to the issue of senior persons, I was surprised that the Minister stated that Amendment 47A might result in the unintended consequence of drawing into the line of fire junior staff when a senior should be responsible. In fact, the risk we asked counsel to deal with was exactly the opposite—the risk of senior people using juniors as an escape route by a system they devised. That is exactly the opposite of the interpretation put upon it by the Minister.
	The amendment is designed to avoid the money-laundering reporting officer being the only one to carry the can: it includes his superiors as well, hence the words in the amendment,
	“all persons responsible for management of persons”.
	We do not want the courts littered with trials about superior orders and tuppeny-ha’penny defences based on statutorily loose language.
	I turn, finally, to the question of standards of behaviour and rules of conduct. The amendments concerned are Amendments 53A, 53B and 54A. The point I wish to make by way of introduction—again meeting something that was said by the noble Viscount, Lord Trenchard, and the noble Lord, Lord Flight—is that in London we are dealing with international banking. We are inviting rules to be observed by not only British citizens but foreign workers in our banks, who are expected to observe and apply our laws. Under these amendments the FCA and the PRA must make appropriate rules in relation to statutory responsibilities. The rules must be designed to avoid the risk of participation in such crime.
	I have taken some time on this because out there, despite all the technical stuff we talk about in certain debates, the one thing the public will expect out of the Bill is that it will contain provisions designed to restore trust, domestically and internationally, in our banking system. To suggest that these amendments are unnecessary is naiveté. They are necessary. There is no loss to their
	intent by inclusion but there is much to be gained. I ask the Committee to look at these amendments with favour.

Lord McFall of Alcluith: My Lords, it is a pleasure to follow the noble Lord, Lord Brennan, and to have my name on these amendments. At Second Reading, I mentioned that the Parliamentary Commission on Banking Standards was charged with looking at culture and standards. We found a culture that was rotten and standards that were abysmally low. That applies particularly in the area of senior management and we need to ensure that the individuals, the organisations and the regulator do something about it.
	My concern is that these amendments might not fully deal with the anti money-laundering failings that we have seen. I looked to the Economist, courtesy of the December 2012 issue, to recap on what we have seen in terms of egregious examples. The biggest money-laundering settlement with the US authorities was made by HSBC, which settled for $1,921,000,000—about $2 billion. Its money-laundering activities involved countries such as Cuba, Iran, Libya, Mexico, Myanmar and Sudan. Standard Chartered’s settlement was $667 million and the countries with which it was involved were Iran, Libya, Myanmar and Sudan. RBS had a $500 million settlement and it was involved with Iran and Libya. Lloyd’s Banking Group’s was $350 million and was involved with Iran and Sudan. The settlement for Barclays was $298 million and the countries were Cuba, Iran, Myanmar and Sudan. These were all UK-based companies, so our integrity as a financial centre in London is at risk as a result of the failings that we have seen.
	The issue of HSBC is important because it took over a bank in Mexico. The group chief executive, Stuart Gulliver, and the group chairman, Douglas Flint, came before the Parliamentary Commission on Banking Standards. I asked Stuart Gulliver question 3777:
	“Mr Gulliver, after acquiring the Mexican bank, it was known right up to board level that the bank had few, if any, money laundering controls, and that the affiliate did not meet group standards. So why was it allowed to continue correspondent banking, when it was known that it didn’t meet group standards? Was it wilful ignorance or were the systems not in place for that?”.
	Stuart Gulliver said:
	“I think the answer lies—I think the Commission has seen this in a number of instances—with culture. The culture failures were at two levels. We bought a bank in Mexico that we bought cheaply because it was in distress. That bank, as you can see from the documentation, clearly had inadequate anti-money laundering systems. We ourselves were too slow to put in place anti-money laundering systems that would be up to the standards we would all expect.”
	I intervened and said:
	“But you knew from day one of acquiring the bank that there were problems”.
	Stuart Gulliver replied that, yes, he knew from day one; so a global bank with a reputation in London acquired a bank in Mexico, knowing from day one that it did not have adequate anti money-laundering facilities.
	Then I quoted the head of group compliance, David Bagley, who had said that his,
	“‘mandate was limited to advising, recommending, and reporting. My job was not—and I did not have the authority, resources, support or infrastructure—to ensure that all of these global
	affiliates followed the Group’s compliance standards. Rather, final authority and decision-making rested with local line management in each affiliate’”.
	I continued my questioning:
	“In October 2002, a month before HSBC acquired the bank in Mexico, David Bagley said in an e-mail: ‘There is no recognisable compliance or money laundering function’. Is that not amazing?”.
	Was that not amazing for a global bank with the reputation it had? My point to the Minister is that he should not accept the words of the banks, because one of the things that the Parliamentary Commission on Banking Standards was tired of hearing was executives saying: “These were the problems that existed in the past. We have sorted them out. There are new people in place; ergo the problem will not exist”. However, at the Parliamentary Commission on Banking Standards, we were seeing examples every month of these egregious behaviours, so we have to ensure that both the regulator and the companies have the necessary authority and that the regulator enforces that.
	On the issue of HSBC and the Mexican drugs, these are not victimless crimes. To put it into context, more than 35,000 people died at the hands of Mexican drug gangs at the time HSBC was involved in this money-laundering operation. The chair of the Senate Investigations Subcommittee, when referring to the widespread anti money-laundering failures of HSBC, described its culture as “perversely polluted”.
	The Financial Conduct Authority itself confirmed how widespread the problem was. In 2011, it published a review into how banks deal with situations of high money risks. It found that 75% of banks were not taking adequate measures to ensure that they met their legal obligations and that more than a third were willing to accept business with a high degree of money-laundering risk if they thought they could get away with it. Based on that 2011 review and other findings, the FCA concluded that for UK banks,
	“the level of anti-money laundering compliance is a serious concern … the weaknesses we see in firms’ dealings with high-risk customers is a serious and persistent problem”.
	As the Parliamentary Commission on Banking Standards noted in its final report, by failing to prevent criminals from abusing our financial system, the banks are compromising the integrity of this sector and our economy as a whole. By failing to prevent money laundering, banks are making the UK vulnerable to tax evaders, drug smugglers, arms traffickers and corrupt politicians laundering their ill-gotten gains. The potential for a major British bank losing its licence in a major market would have huge ramifications for the UK economy. HSBC came perilously close to losing its licence. The Justice Department was of a mind to take its licence away and we all know that there was involvement from the Foreign Office and elsewhere to ensure that that licence was not indeed taken away. This issue is hugely serious for the integrity of our banks and for the economy.
	The Parliamentary Commission on Banking Standards highlighted a number of general causes for the abysmal standards in the UK banking sector. Two of the most important ones were the lack of personal responsibility for senior bankers and poor enforcement of legal obligations by the regulators. I well remember that when Tracey McDermott, the director of enforcement, came before the commission we had another egregious
	example—one of the star traders of UBS losing billions of pounds. When we asked her what went wrong, she said, “We investigated the bank and the trail went cold”. The trail went cold because there was no list of individuals responsible for particular issues in the bank.
	One of the things we would like to see is the responsibility flipped to individual bankers. Time and time again, as was mentioned earlier, we had senior bankers with PPI issues coming before us and saying, “We knew nothing about it”. It was a no-see, no-tell policy. They were evading the responsibility and they were evading being honest with the Parliamentary Commission on Banking Standards because if they had been honest with us, they would have been culpable.
	Since we have had the Parliamentary Commission on Banking Standards, I have had a number of communications from one or two of the executives who came before us, asking whether I would meet them so they could explain how they went about their business and tell me about the restrictions placed on them within the organisations themselves. They wanted to demonstrate that they had personal integrity, notwithstanding the fact that everything—the whole ship—went down in terms of the organisation. I did see them.
	This issue of a no-see, no-tell policy is really important. The noble Lord, Lord Turnbull, made the point about a handover note. It would seem to be a minor point, but this is hugely important. The Government must ensure that they get that right by allowing the regulator to lay down—“may lay down” are the words in the legislation—elements of the conduct of business. There has to be a real attempt here to ensure that full responsibility is taken by the senior executives.
	It was clear that even when personal liability could be established the regulator rarely took up the case and when it did the punishment for individuals was non-existent or weak. I mentioned that the regulator was captured, cowed and conned by the industry. We need to ensure that the regulator has a spine in future to ensure that the organisations take individual responsibility and, if they do not, if it knows who is responsible, make its enforcement division very strict on the matter.
	I suggest that, given the poor record of regulation, it is incumbent on us in Parliament to give the clearest steer possible, so that the commission’s recommendations are not diluted during the second, regulator-led stage of implementation. There needs to be firmness from both the regulator and Parliament. I hope that the amendments indicate to the Government that the anti money-laundering area is one that they should look at again and that they should come back before Report stage with something meaningful for us to address.

Lord Lawson of Blaby: My Lords, I do not want to go into the issue of money laundering; we have had a good debate on it and I am sure that my noble friend may have some further observations to make in the light of what has been said.
	I endorse very strongly what the noble Lord, Lord Turnbull, had to say when speaking to this group of amendments. The Government are indeed to be commended on this series of amendments. However,
	as the noble Lord, Lord Turnbull, pointed out, in certain important ways, they do not go far enough. There is also the critical question of the definition of a bank in government Amendment 55. We would like to hear very clearly what is the definition of a bank and we would like the Government to look again at the points that the noble Lord, Lord Turnbull, my fellow commissioner on the banking commission, made. Although the Government have made a huge advance, there are still important areas where they have not gone far enough.
	I should also like to address what lies behind this and what my noble friends Lord Trenchard and Lord Flight said in casting doubt on the whole drift of the provision. We have sought to say that there must be personal responsibility on members of the senior management in banks. It is not good enough for there simply to be fines on banks when things have gone wrong and there has been culpability. What happens if there are fines on banks? Who bears the burden? It is the owners of the banks, the shareholders. The shareholders are the innocent victims here. There must be individual responsibility on the management where such behaviour can be demonstrated or where the management neglectfully failed to exercise responsibility.
	As the noble Lords, Lord Turnbull and Lord McFall, said, in hearing evidence, the commission heard one of two things: either, “It wasn’t me; it was a collective board decision, so no individual is responsible”; or, “It wasn’t me; I had no idea what the traders in my bank were doing; it was all them”. Of course, we strongly suspected that the reason that they had no idea what the traders were doing was that they took great care not to know. The point is simple: if they did not know what the traders were doing, they were culpable. It is their business to know what their traders are doing. That will not wash either.
	Then we have heard the excuse: “What about the regulators? The regulators were at fault”. So they were; that is beyond dispute. The Government have introduced a new system of regulation and supervision which they hope will be better than the one that preceded it. We will come to this later, but we have suggested ways in which that, in our judgment, needs to be further strengthened. That does not exculpate the bankers.
	It has also been suggested that the Bank of England was pursuing an inappropriately cheap money policy and, therefore: “What were the bankers meant to do? It is the Bank of England’s fault”. I shall not detain the House by going into this now, but it is arguable whether the cheap money policy was wrong or right at the time. I think that you could make a very good case that it was appropriate at the time, but anyhow, whether it was wrong or right, it is no good a banker saying, “I couldn’t help making a bad loan. I couldn’t help taking excessive risks. I couldn’t help being reckless”. That is absurd and pathetic.
	Of course, others were culpable. The auditors were culpable. They never raised a finger to warn the boards of the banks of the risks that they were running. Again, we all know that the ratings agencies were culpable. The ratings agencies made mistakes in calling
	rubbish derivatives triple-A. But at the end of the day, the buck stops with the bankers. It is their responsibility. That is what they are paid to do. It is their judgment that they are meant to exercise.
	Finally, we were told, “Oh, there may be other jurisdictions, such as Hong Kong”, or wherever, “where standards are lower, so we cannot afford to have higher standards and more direct responsibility than in Hong Kong”. That is no good at all. The standards in the City of London should be the highest in the world. The whole thinking behind the commission on banking standards was that we wanted to clean up banking, not to destroy it, so that British banking can be even stronger and make an even greater contribution to the British economy than it has in the past. That is what we were about.
	Personal responsibility is not the whole of the solution, but personal responsibility of the senior management is a vital and necessary element. Therefore, as I said, I commend the Government for having moved a long way in that direction, but a little more needs to be done, as the noble Lord, Lord Turnbull, pointed out.

Lord Watson of Invergowrie: My Lords, I am proud to have my name associated with that of my noble friends Lord Brennan and Lord McFall in this group of amendments.
	I certainly agree with much of what was said by the noble Lord, Lord Lawson, not least when he said that we have covered the question of money laundering in some detail. Indeed we have, but I shall not apologise for reinforcing some of the points made and, I hope, finding one or two that have not been made. At its mildest, it is disappointing to hear the Minister say that the amendments are unnecessary and that what they are intended to achieve is largely covered in the Bill or in the government amendments
	My noble friend Lord Brennan called that naivety. Yes it is; I would say that it is also complacent in the extreme. The examples given by my noble friend Lord McFall show that the current system for British banking is not working. The huge fines levied on HSBC and Standard Chartered by the US authorities showed that the US authorities do not think that British banking standards are high enough. I absolutely concur with the view of the noble Lord, Lord Lawson, that the standards of British banking should be the highest in the world. If that puts off some people from working in this country, so much the better.
	It should be stressed that money-laundering regulations in the UK are designed to protect our financial system. That is primarily why they are there. Money-laundering is more widely defined in the UK than in several other jurisdictions, notably the USA and much of Europe. UK money-laundering offences are not limited to the proceeds of serious crimes, nor are there any monetary limits. Financial transactions need no money-laundering design or purpose for our laws to consider them a money-laundering offence. A money-laundering offence under existing legislation need not even involve money, since the money-laundering legislation covers assets of any description. The law applies to a person who by criminal conduct evades a liability such as a taxation liability, and that individual is deemed to have obtained
	a sum of money equal in value to the liability evaded. That is a very important point. Just a week ago HMRC announced that every year some £35 billion of taxes due in this country is not collected.
	With that in mind, we should be careful about setting aside the idea that money-laundering is an issue. I suggest that it is very much an issue. My noble friends have rightly outlined a number of reasons why we really cannot afford to miss the opportunity the Bill provides to deal with failures in anti money-laundering compliance. Not only would that compromise the outstanding work and considerable efforts of the Parliamentary Commission on Banking Standards, it could have a tragic human cost. Some of the most vulnerable people in poor countries around the world suffer in many ways as a result of the effects of money-laundering.
	I want to stress the matter of our own economy. The parliamentary commission rightly argued that good standards in the banking industry are important for not only the health of that sector, but the wider UK economy as a whole. Correspondingly, failures in standards jeopardise the health of our economy. That may seem self-evident, but surely the banking sector in this country has been responsible for enough damage to our economy in recent years.
	It is vital that we take the opportunity to ensure that failures to comply with anti money-laundering laws and other financial regulations do not lead to any further damage. I suggest that there is a real risk of that, notwithstanding that, as was highlighted by the noble Lord, Lord Flight, HSBC has taken rather stringent measures as a result of being hauled over the coals in the US. If as a result some individuals have lost out or been inconvenienced, as he seemed to be suggesting, then that is regrettable. However, it is really pretty small beer compared to some of the issues involved in and the amounts affected by money-laundering throughout the world, often with the involvement of parts of the British banking sector.
	When dealing with this issue it is important that we do not easily say that it is all right, that the legislation covers everything we need, and that there is no need for amendments such as these. In preparing for this part of our discussions this afternoon, I looked at the Bill in detail. I was able to find a total of eight separate pieces of legislation mentioned in the Bill, as it was originally published. Not once in the Bill did I find any mention of the words “anti money-laundering”, for a start. Nor did I find any mention at all of the three pieces of legislation—the Proceeds of Crime Act 2002, the Fraud Act 2006, or the Money-laundering Regulations 2007—in some of the amendments we are discussing. Apparently the Government do not think that there is any need to link, at least explicitly, those pieces of legislation with the Bill. That is a grave mistake.
	My noble friend Lord Glasman came up with a phrase that struck a chord, certainly with me and I suspect also with other noble Lords: without incentives to virtue, you get incentives to vice. That is absolutely the case, and I very much hope that the Minister will reconsider what I believe to be his rather complacent position on these amendments.

Baroness Noakes: My Lords, for various reasons I have not yet had an opportunity to speak to the Bill. As this is my first appearance, I declare an interest as recorded in the register as a non-executive director of the Royal Bank of Scotland Group plc. I emphasise that what I am about to say represents my personal views, and in no way represents anything that I have been asked or encouraged to say by the Royal Bank of Scotland.
	I want to comment on the group of amendments that the noble Lord, Lord Brennan, introduced when he raised the extremely important issue of anti money-laundering and the legislative provisions that he referred to, and on my noble friend Lord Newby’s comments about seeking to import specific references into this group of amendments. I should say that I support the intention of the amendments which the Government have brought forward to have a much enhanced set of standards and supervision for those taking management responsibilities within banks.
	My concern about the amendments introduced by the noble Lord, Lord Brennan, is that by singling out one group of activities, however important, we might give the impression that a lot of other things are not as important. The schema at the moment is drafted quite generically. It will eventually leave a lot to the discretion of the regulators—which I think is right—so that they can operate it in an effective manner. However, by singling out the particular legislation that the noble Lord, Lord Watson of Invergowrie, referred to—the Fraud Act, the Proceeds of Crime Act and the Money Laundering Regulations—it seems to me that a lot of things are not said.
	The noble Lord referred to lawyers immediately looking at what is said and what is not said in legislation. I therefore put it to him that after his amendments a number of important things would not be said in this legislation, which might lead people to think that they were not intended to be covered. For example, issues which are similar to money-laundering but which were not mentioned by the noble Lord’s amendments are terrorism financing offences and sanctions offences. These are very similar, and the banks operate very similar systems to deal with money-laundering and to stop unauthorised financial transactions with terrorists and those on sanctions lists. However, the noble Lord’s amendments do not cover these.
	Stepping away from that, other potentially criminal activities would not be mentioned by the legislation after the noble Lord’s amendments. I single out the new offence which was introduced post-LIBOR, the offence of rate manipulation, for which I cannot remember the exact term. This would be another criminal activity which would not be mentioned by the Bill. Beyond that, there would be a lot of very important compliance and conduct issues that are managed by banks which would not be caught by any specific criminality, but nevertheless would have devastating consequences for individuals. Within the definition these could involve a serious risk of consequences to the authorised person or business interest of the United Kingdom, and therefore should be caught.
	Banks must responsibly manage a whole range of conduct and compliance issues. My point is not that I am against trying to ensure that money-laundering is within the legislation. I am sure that money-laundering offences will be fully taken into account by the PRA when it implements the new regimes. My problem is that by mentioning them we have omitted to mention some other really important things which should definitely be covered.

Baroness Liddell of Coatdyke: My Lords, I found that to be a very interesting speech from the noble Baroness, Lady Noakes. She took up a point that I had been thinking about, but we come at the prevention of terrorism from a different point of view. I believe that with this legislation the prevention of terrorism interface would be through money-laundering. Certainly it could be wider than that in relation to sanctions regimes and so on, but the specific area of prevention of terrorism relates quite directly to the ability of organisations such as al-Qaeda to put money through the system, apparently cleanly. They hope—and are able to be fairly confident—that there would not be the rigorous review and analysis that there should be by sufficiently senior people within the banking system.
	I do not have the knowledge and expertise of some of the excellent speeches that we have heard this afternoon, but I have an interest in legislating to prevent terrorism. It is a critical part of our banking system, and I am grateful to the noble Baroness for raising that. I hope that this is something that the Minister will look at.
	The noble Viscount, Lord Trenchard, who I regret is not in his place, said something which I must admit prompted me to speak in support of the amendments of my noble friends. He spoke about the fact that we would seek to attract the best bankers, because they would be lured to places such as Singapore and Hong Kong and even increasingly to Shanghai. If a banker is sufficiently venal that he or she would chase the biggest pound, when bankers are not exactly paid the national minimum wage, rather than seeking to operate in an environment of the utmost integrity, then frankly I am not all that sure that we would want them in the British banking system. We have the ability through this legislation to underline our position as the greatest financial services centre in the world. It is specifically because of the venal attitude that we have seen that this economy and economies around the world were almost brought down.
	I hope that in looking at the anti money-laundering aspects which my noble friends have raised in their amendments, the Government will think again about this. I do not think that there is a vast chasm here, and I do not take the view of the noble Lord, Lord Flight, who I often agree with, that there is far too much anti money-laundering legislation. Yes, that legislation can be profoundly irritating when you come up against it. There are an awful lot of things in life now that are profoundly irritating, such as having to put your toothpaste into a plastic bag at the airport. However, we live with them because we know why we have to.

Lord Flight: I clearly did not make my point correctly. I was simply trying to say that I have seen reactions to anti money-laundering arrangements, namely HSBC sacking all its US clients and 26 embassies in the UK being blacklisted by the FATF and having problems getting bank accounts. By the way, 10 of those embassies belonged to members of the EU. It is right to focus on anti money-laundering for the reasons which noble Lords correctly pointed to, but people do not take account of the other side of the coin. What is happening, as I described—and it will increasingly happen—is that people who come from countries that have been FATF-blacklisted will find it impossible to get a bank account, although they may be completely innocent.

Lord Eatwell: My Lords, I have an amendment in this group and it may be for the convenience of the Committee if I speak to it now. Before doing so, I would like to make two comments about the discussion that has gone on so far. First, Amendment 55 in the name of the noble Lord, Lord Deighton, which includes the meaning of what is a bank, requires very careful exposition by the Minister, because if it says what it appears to say then it seriously undermines the whole discussion about the senior persons regime that we have been having up until now.
	Secondly, on the amendments tabled by my noble friend Lord Brennan and his colleagues, it seems that it is incumbent on the Treasury between now and Report to produce a written report demonstrating the noble Lord’s claim that these amendments are unnecessary; showing that the current regime is fully in accord with the latest FATF principles; and therefore providing the comfort which my noble friend might seek if his amendments are indeed unnecessary. Perhaps the noble Lord could also take in some of the points made by the noble Baroness, Lady Noakes, as there are areas that the noble Baroness wants to be sure are equally well covered. Particularly with respect to the issues raised about anti money-laundering and prevention of terrorism principles, it is crucial, as those principles are conveyed into legislation, that we are absolutely clear—and the legislation is clear and explicit—on this matter.
	Amendment 100, which is in my name and that of my noble friend Lord Tunnicliffe, proposes to introduce a licensing regime to apply to all approved persons. The noble Lord, Lord Newby, made the extraordinary remark that this would weaken what was elsewhere in the regime as set out in the Government’s amendments. However, I was heartened to hear the noble Lord, Lord Turnbull, use the word licence as I did, and to hear him quote almost word for word the specification of,
	“minimum thresholds of competence … integrity, professional qualifications, continuous professional development”,
	and so on, which is included in our amendment.
	Amendment 100 would significantly strengthen the requirement for approved persons to be suitably qualified in this country, to be licensed and to face the possibility of having the licence removed. Doctors, teachers and lawyers all require some form of professional licence, so why not approved persons in banking? If the noble
	Lord really undertook to understand this amendment he would realise that it fits precisely with the goals of the commission and would significantly strengthen the quality of regulation and approval of those working in the banking sector in this country.

Lord Desai: My Lords, I support what my noble friend Lord Eatwell said and speak in relation to what the noble Lord, Lord Lawson, said. People who are supposed to be responsible for the conduct of, as it were, their inferiors in the bank sometimes do not understand what is happening below them. Certainly, in the case of Baring Brothers the management did not understand what Nick Leeson was doing. This is a matter of competence. I very strongly support this amendment because we ought to have periodic examinations of people in charge of banks, and see whether they pass those examinations, because the profession is changing and they are way behind a changing business.

Lord Phillips of Sudbury: My Lords, I support very much what the noble Lord, Lord Eatwell, has just said. We need a clear and authoritative report from my noble friend the Minister as to who is right between the noble Lord, Lord Brennan, who is a highly distinguished lawyer, and those who are advising my noble friend. If there is any doubt about the matter, I see virtue in the amendments put down in the names of the noble Lords, Lord Brennan, Lord McFall and Lord Watson of Invergowrie. I commend the organisations that have helped to craft those important amendments. There again, the noble Baroness, Lady Noakes, seems to make a strong point. If on second thoughts the Minister cannot assure us that the amendment of the noble Lord, Lord Brennan, is superfluous, one would want him to assure the House that the noble Baroness’s concern is superfluous.

Lord Newby: My Lords, perhaps I may start by dealing with the three points on which the noble Lord, Lord Turnbull, sought clarification. The first was on the definition of “bank” for the purposes of these amendments. The regime will apply to all UK institutions that have permission to take deposits. That covers ring-fenced banks, other banks, building societies, credit unions and some wholesale deposit takers, but it does not cover things which in popular parlance are called banks but which do not take deposits.

Lord Turnbull: If a bank divides itself under the new regime into a ring-fenced bank which takes deposits and puts its investment activities—derivatives, underwriting and proprietary trading—into a non-ring-fenced bank which does not take deposits, does it mean that that mass of activity will not be covered by the regime? Much of the manufacturing took place in that area.

Lord Newby: My Lords, I repeat: it is limited to banks that take deposits, because the view is that they are of a different order of significance in the system. I think that we have a difference of view.

Lord Turnbull: The question then becomes, “Should it be those areas?”, and a question of whether the Minister will take this back to the Treasury and come up with a scheme that includes them. I do not think it will be understood that the people supervising some of the activities that I mentioned are not covered by it. We are actually weakening the regime.

Lord Newby: I will take it back to the Treasury, but I want the noble Lord to be in no doubt as to what the Government are currently proposing.

Lord Lawson of Blaby: May I reinforce what others have said? I am horrified by the Minister’s explanation. He must take it back to the Treasury and get the Treasury to think again. I refresh his memory, for example, about the evidence that we took from UBS. Not only was it culpable to an extraordinary degree in the LIBOR scandal but its top management also said that it knew nothing about what its traders were doing. This was in spite of the fact that when it had its capital-raising exercise, it presented to all the funds that its great profit centre was trading in LIBOR derivatives. Then it said, “We know nothing about it”. This made it immensely culpable. The Minister is saying that if you had a bank that was not taking retail deposits but was doing just that, there would be no individual responsibility at all under this Bill. I am afraid that he must look at that again.

Lord Eatwell: I would like to reinforce the position of the official Opposition on this. We are totally behind what the noble Lords, Lord Lawson and Lord Turnbull, have said. It is disgraceful to suggest that investment banks that are not deposit-taking but offer a wide range of financial services should not come under this senior persons regime.

Baroness Noakes: Was the Minister talking about retail deposits, as I believe my noble friend Lord Lawson has interpreted him saying, or, as the legislation seems to me to say, about deposit-taking more widely? Deposit-taking is not confined to retail banking on ring-fenced operations. Deposit-taking occurs across the whole range of banking activities, as far as I am aware. Will he clarify to what kinds of activity he intend this to apply?

Lord Newby: The definition relates to deposit-taking, retail and wholesale.

Lord Flight: Could I add my support? It seems to me that it is in investment banking territory where there is the greatest scope and where there has been the most inappropriate behaviour. It was Lehmans that nearly brought the whole system down. Part of the intent of the ring-fence is that what is in it is much simpler banking. The whole argument does not stand up unless investment banks are very much covered by the new regime.

Lord Eatwell: As clarification, given what the Minister has said about wholesale deposits, if there was an organisation providing banking services on a fee-based basis, would it be alone? Would it be exempt?

Lord Newby: My Lords, unless it was taking deposits it would be exempt under the amendments as they stand. It is fair to say that I have heard what the House has said and I will relay it with all force to my colleagues in the Treasury, who will not have had the privilege to hear it directly.

Lord McFall of Alcluith: It would be easy to put a note in the Library about which institutions will be affected and which will not, so that we can see for ourselves and there is no misinterpretation when we look at this further on Report.

Lord Newby: I am not sure that I can undertake to give a comprehensive list, but I am sure that I can undertake that we would explain which named organisations fall on both sides of that definition.
	The next point made by the noble Lord, Lord Turnbull, was about the licensing regime. He made a common point about “may” as opposed to “must”, something that we debate at huge length. There is no doubt that there will be not a licensing regime in his terms, but there will be rules of conduct that will cover all employees for whom they are relevant. The intention is not for the cleaners to be covered by these rules. It is perfectly well understood with the PRA that it will not only produce the rules but set out the scope of which employees will be covered by them.
	The noble Lord asked about the handover note. Our view is that we do not need primary legislation to require handover notes. The regulators can require that in their rules, and I am sure that they plan to. When senior managers take on a new job, new statements of responsibilities are required so that there is absolute clarity on what the senior manager is responsible for. We see these as fulfilling the purpose that he had in mind, and which other people might colloquially think of as a handover note.
	The noble Viscount, Lord Trenchard, raised the question about whether British banks would be at a disadvantage. I cannot really add to the comments of my noble friend Lord Lawson and others, other than to say that the Government believe that it is in the long-term interest not only of bank customers but of the City of London that the highest possible standards are followed here. If individual bankers feel that they do not want to operate to the highest possible standards, they should go somewhere else.
	The noble Viscount, Lord Trenchard, and the noble Lord, Lord Flight, asked whether the senior management regime undermines collective responsibility. We do not think that it does. It ensures that individuals are held to account when things go wrong. It will not change the way in which decisions are taken in a collective manner.
	The noble Lord, Lord Flight, raised a point that has been made a number of times: why did the regulatory system get away with it, and why has no action been
	taken? The answer is that the restructuring of the system was undertaken to try to ensure that we did not have the same problems again. The Government believe that that is how you stop the laxity of the past, and that we begin to instil a new culture by having different organisations, objectives and rules. The regulatory regime has not gone through this process unamended.
	Moving on to the amendments introduced by the noble Lord, Lord Brennan, I assure him that there is no difference of view between him and other noble Lords who supported this amendment about the significance of money-laundering and the need for it to be tackled effectively, nor of the scale of it. The scale of money-laundering is very large, and the Government and the regulators are determined to cut it down.
	I would like to make some points against the amendments and in response to some of the things that have been said. The most important point was that raised by the noble Baroness, Lady Noakes. The requirements for senior managers to stay within the law on money-laundering are no different from those to keep to the law in every other area where there is law. The noble Lord has a laudable interest in money-laundering while the noble Baroness is interested in anti-terrorism legislation. There may be an overlap, but they are distinct. Other noble Lords are interested in other things, where bankers have a legal responsibility to keep within the law. Singling out money-laundering, at a point where it is not required in order to be covered by the legislation, serves no useful purpose and can be positively unhelpful. However, I am happy to take up the sensible suggestion from the noble Lord, Lord Eatwell, that we provide a letter of comfort, as it were, between now and Report to confirm that the regulator takes this extremely seriously, and that we begin to explain how the obligation under the law will be undertaken.
	The noble Lord, Lord McFall, repeated that in the past the trail could go cold. The great thing about these provisions is that they deal explicitly with that. To say that the trail goes cold will no longer be a defence.

Lord McFall of Alcluith: The reason I said that is that Tracey McDermott, the present FCA director of enforcement, came before the committee and answered that question in all honesty. She said that what is needed is a chart of organisations to determine who is responsible for what and a handover document. That is at the start at the moment; it has not been fleshed out. That is the reason why I brought that point to the Minister.

Lord Newby: When this amendment is enacted, it will ensure that a senior manager will have his or her areas of responsibility explicitly set out on appointment and that he or she will be held responsible for everything that happens on their watch in that area. It will no longer be a defence to say, “The trail ran cold” or “Nobody told me about it”, as long as they might reasonably be expected to know about it. That is a killer point in respect of this amendment.
	The noble Lord, Lord Watson, said that the Government are complacent, as HSBC has shown. It is in part because of the HSBC experience that
	this series of amendments has been introduced. We are confident that they will stop that happening again.
	The noble Lord, Lord Eatwell, set out the arguments for a licensing regime. The Government believe that the code of conduct we are proposing, which will cover all those involved in banking activities, is a proportionate response to the need for the kind of principles followed by people on a day-to-day basis in the banking sector that the noble Lord wants covered by the licensing regime. We are confident that the Government will achieve that.
	I hope that I have dealt with most of the points that were raised. I commend the amendment to the Committee.
	Amendment 45 agreed.
	Amendment 46
	 Moved by Lord Newby
	46: After Clause 12, insert the following new Clause—
	“Senior management functions
	After section 59 of FSMA 2000 insert—
	“59ZA Senior management functions
	(1) This section has effect for determining whether a function is for the purposes of section 59(6) and (6B) a senior management function.
	(2) A function is a “senior management function”, in relation to the carrying on of a regulated activity by an authorised person, if—
	(a) the function will require the person performing it to be responsible for managing one or more aspects of the authorised person’s affairs, so far as relating to the activity, and
	(b) those aspects involve, or might involve, a risk of serious consequences—
	(i) for the authorised person, or
	(ii) for business or other interests in the United Kingdom.
	(3) In subsection (2)(a) the reference to managing one or more aspects of an authorised person’s affairs includes a reference to taking decisions, or participating in the taking of decisions, about how one or more aspects of those affairs should be carried on.””

Lord Newby: My Lords, I beg to move.
	Amendment 46A (to Amendment 46)
	 Tabled by Lord Brennan
	46A: After Clause 12, line 13, leave out paragraph (b) and insert—
	“(b) those aspects involve, or might involve, a risk of—
	(i) serious consequences for the authorised person, or
	(ii) serious consequences for business or other interests in the United Kingdom, or
	(iii) conduct or omissions by or on behalf of an authorised person related to or resulting from the authorised person transacting with criminal property for its benefit or for the benefit on behalf of other persons.”

Lord Brennan: My Lords, I am grateful to the Minister for telling us that he will write in due course about the matters that I raised. If the Committee will forgive me for using a graceless Americanism, we
	are not talking about legislative refinement—this is hardball. It is serious stuff out there in the commercial world.
	I reassure the noble Baroness, Lady Noakes, that I have assumed that money-laundering has its technical meaning, which is using a bank to convert illicit money into a licit flow, which would include tourism and so on, but if necessary that can be dealt with by way of a bigger list in due course.
	Amendment 46A (to Amendment 46) not moved.
	Amendment 46B (to Amendment 46) not moved.
	Amendment 46 agreed.
	Amendment 47
	 Moved by Lord Newby
	47: After Clause 12, insert the following new Clause—
	“Statements of responsibilities
	(1) Section 60 of FSMA 2000 (applications for approval) is amended as follows.
	(2) After subsection (2) insert—
	“(2A) If—
	(a) the application is for the approval of a person to perform a designated senior management function, and
	(b) the authorised person concerned is a bank,
	the appropriate regulator must require the application to contain, or be accompanied by, a statement setting out the aspects of the affairs of the authorised person concerned which it is intended that the person will be responsible for managing in performing the function.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(2B) A statement provided under subsection (2A) is known as a “statement of responsibilities”.
	(2C) In subsection (2A) “designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).”
	(3) After subsection (6) insert—
	“(6A) Subsection (6) applies to references to a bank as it applies to references to the authorised person concerned.””

Lord Newby: My Lords, I beg to move.
	Amendment 47A (to Amendment 47) not moved.
	Amendment 47 agreed.
	Amendments 48 to 52
	 Moved by Lord Newby
	48: After Clause 12, insert the following new Clause—
	“Power to give approval subject to conditions or for limited period
	(1) Section 61 of FSMA 2000 (determination of applications) is amended as follows.
	(2) For subsection (1) substitute—
	“(1) The regulator to which an application for approval is made under section 60 may grant the application only if—
	(a) it is satisfied that the person in respect of whom the application is made (“the candidate”) is a fit and proper person to perform the function to which the application relates, or
	(b) in a case where the application is for approval to perform a designated senior management function in relation to the carrying on of a regulated activity by a bank (a “bank-related senior management application”), it is satisfied that the condition in paragraph (a) will be met if the application is granted subject to one or more conditions (as to which, see subsection (2B)).”
	(3) In subsection (2), for “deciding that question” substitute “determining the application”.
	(4) After subsection (2A) insert—
	“(2B) The regulator to which a bank-related senior management application is made under section 60 may in particular—
	(a) grant the application subject to any conditions that the regulator considers appropriate, and
	(b) grant the application so as to give approval only for a limited period.
	(2C) A regulator may exercise the power under paragraph (a) or (b) of subsection (2B) only if—
	(a) where the regulator is the FCA, it appears to the FCA that it is desirable to do so in order to advance one or more of its operational objectives, and
	(b) where the regulator is the PRA, it appears to the PRA that it is desirable to do so in order to advance any of its objectives.
	(2D) Consent given by the FCA for the granting of the application may be conditional on the manner in which the PRA exercises its power under subsection (2B).”
	(5) After subsection (3) insert—
	“(3ZA) In the case of a bank-related senior management application, the reference in subsection (3)(a) to granting the application is a reference to granting it without imposing conditions or limiting the period for which the approval has effect.”
	(6) After subsection (5) insert—
	“(6) In this section—
	(a) “designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C);
	(b) any reference to a bank includes a reference to a person who has applied for permission under Part 4A and will be a bank if permission is given.”
	(7) In section 62 of FSMA 2000 (applications for approval: procedure and right to refer to Tribunal)—
	(a) in subsection (2), after “the application” insert “, or to grant the application subject to conditions or for a limited period (or both)”;
	(b) in subsection (3), after “the application” insert “, or to grant the application subject to conditions or for a limited period (or both)”;
	(c) in subsection (4), after “the application” insert “, or to grant the application subject to conditions or for a limited period (or both)”.”
	49: After Clause 12, insert the following new Clause—
	“Changes in responsibilities of senior managers
	After section 62 of FSMA 2000 insert—
	“62A Changes in responsibilities of senior managers
	(1) This section applies where—
	(a) an authorised person has made an application to the appropriate regulator for approval under section 59 for a person to perform a designated senior management function,
	(b) the application contained, or was accompanied by, a statement of responsibilities under section 60(2A), and
	(c) the application has been granted.
	(2) If, since the granting of the application, there has been any significant change in the aspects of the authorised person’s affairs which the person is responsible for managing in performing the function, the authorised person must provide the appropriate regulator with a revised statement of responsibilities.
	(3) The appropriate regulator may require the authorised person—
	(a) to provide information which the person is required to give under this section in such form as the appropriate regulator may direct, or
	(b) to verify such information in such a way as the appropriate regulator may direct.
	(4) In this section—
	“the appropriate regulator” has the same meaning as in section 60;
	“designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).””
	50: After Clause 12, insert the following new Clause—
	“Variation of approval
	After section 63 of FSMA 2000 insert—
	“63ZA Variation of senior manager’s approval at request of bank
	(1) Where an application for approval under section 59 is granted subject to conditions, the authorised person concerned may apply to the appropriate regulator to vary the approval by—
	(a) varying a condition,
	(b) removing a condition, or
	(c) imposing a new condition.
	(2) “The appropriate regulator”—
	(a) in the case of an application for variation of an approval in a way described in subsection (1)(a) or (b), means whichever of the FCA or the PRA imposed the condition concerned;
	(b) in the case of an application for variation of an approval in the way described in subsection (1)(c), means the regulator who gave the approval.
	(3) The PRA must consult the FCA before determining an application under this section, unless the application relates to the variation or removal of a condition which was imposed by the PRA in exercise of its power under section 63ZB.
	(4) The regulator to which an application is made under this section must, before the end of the period for consideration, determine whether—
	(a) to grant the application; or
	(b) to give a warning notice under section 62(2).
	(5) “The period for consideration” means the period of 3 months beginning with the date on which the regulator receives the application.
	(6) The FCA may refuse an application under this section if it appears to the FCA that it is desirable to do so in order to advance one or more of its operational objectives.
	(7) The PRA may refuse an application under this section if it appears to the PRA that it is desirable to do so in order to advance any of its objectives.
	(8) The following provisions apply to an application made under this section for variation of an approval as they apply to an application for approval made under section 60—
	(none) section 60(2) to (8),
	(none) section 61(4) and (5),
	(none) section 62.
	63ZB Variation of senior manager’s approval on initiative of regulator
	(1) The FCA may vary an approval under section 59 given by the FCA or the PRA for the performance of a designated senior management function in relation to the carrying on of a regulated activity by a bank if the FCA considers that it is desirable to do so in order to advance one or more of its operational objectives.
	(2) The PRA may vary an approval under section 59 for the performance of a designated senior management function in relation to the carrying on of a regulated activity by a bank if—
	(a) either—
	(i) the PRA gave the approval, or
	(ii) the FCA gave the approval and the bank is a PRA-authorised person, and
	(b) the PRA considers that it is desirable to do so in order to advance any of its objectives.
	(3) A regulator may vary an approval by—
	(a) imposing a condition,
	(b) varying a condition,
	(c) removing a condition, or
	(d) limiting the period for which the approval is to have effect.
	(4) Before one regulator varies an approval given by the other regulator, it must consult the other regulator.
	(5) In this section “designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).
	63ZC Exercise of power under section 63ZB: procedure
	(1) This section applies to an exercise, by either regulator, of the power to vary an approval under section 63ZB.
	(2) A variation takes effect—
	(a) immediately, if the notice given under subsection (4) states that that is the case,
	(b) on such date as is specified in the notice, or
	(c) if no date is specified in the notice, when the matter to which the notice relates is no longer open to review.
	(3) A variation may be expressed to take effect immediately (or on a specified date) only if the regulator concerned, having regard to the ground on which it is exercising the power to vary, reasonably considers that it is necessary for the variation to take effect immediately (or on that date).
	(4) If either regulator proposes to vary an approval or varies an approval with immediate effect, it must give each of the interested parties written notice.
	(5) The notice must—
	(a) give details of the variation,
	(b) state the regulator’s reasons for the variation,
	(c) inform the interested parties that each of them may make representations to the regulator within such period as may be specified in the notice (whether or not any of the interested parties has referred the matter to the Tribunal),
	(d) inform the interested parties of when the variation takes effect, and
	(e) inform the interested parties of the right of each of them to refer the matter to the Tribunal.
	(6) “The interested parties”, in relation to an approval, are—
	(a) the person on whose application it was given (“A”),
	(b) the person in respect of whom it was given (“B”), and
	(c) the person by whom B’s services are retained, if not A.
	(7) The regulator giving the notice may extend the period allowed under the notice for making representations.
	(8) If having considered the representations made by the interested parties, the regulator decides—
	(a) to vary the approval, or
	(b) if the variation has taken effect, not to rescind it,
	it must give each of the interested parties written notice.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(9) If having considered the representations made by the interested parties, the regulator decides—
	(a) not to vary the approval,
	(b) to vary the approval in a different way, or
	(c) if the variation has taken effect, to rescind it,
	it must give each of the interested parties written notice.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(10) A notice under subsection (8) must inform the interested parties of the right of each of them to refer the matter to the Tribunal.
	(11) A notice under subsection (9)(b) must comply with subsection (5).
	(12) If a notice informs the interested parties of the right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.
	(13) For the purposes of subsection (2)(c), whether a matter is open to review is to be determined in accordance with section 391(8).
	(14) “Approval” means an approval under section 59.””
	51: After Clause 12, insert the following new Clause—
	“Statement of policy
	After section 63ZC of FSMA 2000 (inserted by section (Variation of approval) above) insert—
	“63ZD Statement of policy relating to conditional approval and variation
	(1) Each regulator must prepare and issue a statement of its policy with respect to—
	(a) its giving of approval under section 59 subject to conditions or for a limited period only, and
	(b) its variation under section 63ZA or 63ZB of an approval given under section 59.
	(2) A regulator may at any time alter or replace a statement issued by it under this section.
	(3) If a statement issued under this section is altered or replaced by a regulator, the regulator must issue the altered or replacement statement.
	(4) A statement issued under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public.
	(5) A regulator may charge a reasonable fee for providing a person with a copy of a statement published under this section.
	(6) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section.
	63ZE Statement of policy: procedure
	(1) Before issuing a statement of policy under section 63ZD, a regulator (“the issuing regulator”) must—
	(a) consult the other regulator, and
	(b) publish a draft of the proposed statement in the way appearing to the issuing regulator to be best calculated to bring it to the attention of the public.
	(2) The duty of the FCA to consult the PRA under subsection (1)(a) applies only in so far as the statement of policy applies to persons whose approval under section 59 relates to the performance of a function designated by the FCA as a senior management function under section 59(6B) in relation to the carrying on by PRA-authorised persons of regulated activities.
	(3) The draft must be accompanied by notice that representations about the proposal may be made to the issuing regulator within a specified time.
	(4) Before issuing the proposed statement, the issuing regulator must have regard to any representations made to it in accordance with subsection (3).
	(5) If the issuing regulator issues the proposed statement it must publish an account, in general terms, of—
	(a) the representations made to it in accordance with subsection (3), and
	(b) its response to them.
	(6) If the statement differs from the draft published under subsection (1) in a way which is in the opinion of the issuing regulator significant, the issuing regulator—
	(a) must before issuing it carry out any consultation required by subsection (1)(a), and
	(b) must (in addition to complying with subsection (5)) publish details of the difference.
	(7) The issuing regulator may charge a reasonable fee for providing a person with a draft published under subsection (1)(b).
	(8) This section also applies to a proposal to alter or replace a statement.””
	52: After Clause 12, insert the following new Clause—
	“Extension of limitation periods for imposing sanctions
	(1) Section 63A of FSMA 2000 (power to impose penalties) is amended as follows.
	(2) In subsection (4), for “period of three years” substitute “relevant period”.
	(3) After subsection (5A) insert—
	“(5B) “The relevant period” is—
	(a) in relation to the performance of a controlled function without approval before the day on which this subsection comes into force, the period of 3 years, and
	(b) in relation to the performance of a controlled function without approval on or after that day, the period of 6 years.”
	(4) Section 66 of FSMA 2000 (disciplinary powers) is amended as follows.
	(5) In subsection (4), for “period of three years” substitute “relevant period”.
	(6) After subsection (5) insert—
	“(5ZA) “The relevant period” is—
	(a) in relation to misconduct which occurs before the day on which this subsection comes into force, the period of 3 years, and
	(b) in relation to misconduct which occurs on or after that day, the period of 6 years.””
	Amendments 48 to 52 agreed.
	Amendment 53
	 Moved by Lord Newby
	53: After Clause 12, insert the following new Clause—
	“Rules of conduct
	(1) Part 5 of FSMA 2000 (performance of regulated activities) is amended as follows.
	(2) Omit sections 64 and 65 (and the italic cross-heading preceding them).
	(3) Before section 66 insert—
	“Conduct of approved persons and others
	64A Rules of conduct
	(1) If it appears to the FCA to be necessary or expedient for the purpose of advancing one or more of its operational objectives, the FCA may make rules about the conduct of the following persons—
	(a) persons in relation to whom either regulator has given its approval under section 59;
	(b) persons who are employees of banks.
	(2) If it appears to the PRA to be necessary or expedient for the purpose of advancing any of its objectives, the PRA may make rules about the conduct of the following persons—
	(a) persons in relation to whom it has given its approval under section 59;
	(b) persons in relation to whom the FCA has given its approval under section 59 in respect of the performance by them of a relevant senior management function in relation to the carrying on by a PRA-authorised person of a regulated activity;
	(c) persons who are employees of PRA-authorised banks.
	(3) In subsection (2)—
	“PRA-authorised bank” means a bank that is a PRA-authorised person, and
	“relevant senior management function” means a function which the PRA is satisfied is a senior management function as defined in section 59ZA (whether or not the function has been designated as such by the FCA).
	(4) Rules made under this section must relate to the conduct of persons in relation to the performance by them of qualifying functions.
	(5) In subsection (4) “qualifying function”, in relation to a person, means a function relating to the carrying on of activities (whether or not regulated activities) by—
	(a) in the case of an approved person, the person on whose application approval was given, and
	(b) in any other case, the person’s employer.
	(6) In this section any reference to an employee of a person (“P”) includes a reference to a person who—
	(a) personally provides, or is under an obligation personally to provide, services to P under an arrangement made between P and the person providing the services or another person, and
	(b) is subject to (or to the right of) supervision, direction or control by P as to the manner in which those services are provided,
	and “employer” is to be read accordingly.””
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).

Lord Newby: My Lords, I beg to move.
	Amendments 53A and 53B (to Amendment 53) not moved.
	Amendment 53 agreed.
	Amendment 54
	 Moved by Lord Newby
	54: After Clause 12, insert the following new Clause—
	“Definition of “misconduct”
	(1) In section 66 of FSMA 2000 (disciplinary powers)—
	(a) after subsection (1) insert—
	“(1A) For provision about when a person is guilty of misconduct for the purposes of action by a regulator—
	(a) see section 66A, in the case of action by the FCA, and
	(b) see section 66B, in the case of action by the PRA.”;
	(b) omit subsections (2), (2A), (6) and (7).
	(2) After that section insert—
	“66A Misconduct: action by the FCA
	(1) For the purposes of action by the FCA under section 66, a person is guilty of misconduct if any of conditions A to C is met in relation to the person.
	(2) Condition A is that—
	(a) the person has at any time failed to comply with rules made by the FCA under section 64A, and
	(b) at that time the person was—
	(i) an approved person, or
	(ii) an employee of a bank.
	(3) Condition B is that—
	(a) the person has at any time been knowingly concerned in a contravention of a relevant requirement by an authorised person, and
	(b) at that time the person was—
	(i) an approved person in relation to the authorised person, or
	(ii) in the case of an authorised person that is a bank, an employee of the bank.
	(4) In this section “relevant requirement” means a requirement—
	(a) imposed by or under this Act, or
	(b) imposed by any qualifying EU provision specified, or of a description specified, for the purposes of this subsection by the Treasury by order.
	(5) Condition C is that—
	(a) the person has at any time been a senior manager in relation to an authorised person that is a bank,
	(b) there has at that time been (or continued to be) a contravention of a relevant requirement by the bank, and
	(c) the senior manager was at that time responsible for the management of any of the bank’s activities in relation to which the contravention occurred.
	(6) But a person (“P”) is not guilty of misconduct by virtue of subsection (5) if P satisfies the FCA that P had taken such steps as a person in P’s position could reasonably be expected to take to avoid the contravention occurring (or continuing).
	(7) For the purposes of subsection (5)—
	“senior manager”, in relation to an authorised person that is a bank, means a person who has approval under section 59 to perform a designated senior management function in relation to the carrying on by the bank of a regulated activity;
	“designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).
	(8) In this section—
	“approved person”—
	(a) means a person in relation to whom an approval is given under section 59, and
	(b) in relation to an authorised person, means a person in relation to whom such approval is given on the application of the authorised person;
	“employee”, in relation to a person, has the same meaning as in section 64A.
	“66B Misconduct: action by the PRA
	(1) For the purposes of action by the PRA under section 66, a person is guilty of misconduct if any of conditions A to C is met in relation to the person.
	(2) Condition A is that—
	(a) the person has at any time failed to comply with rules made by the PRA under section 64A, and
	(b) at that time the person was—
	(i) an approved person, or
	(ii) an employee of a PRA-authorised bank.
	(3) Condition B is that—
	(a) the person has at any time been knowingly concerned in a contravention of a relevant requirement by a PRA-authorised person, and
	(b) at that time the person was—
	(i) an approved person in respect of the performance of a relevant senior management function in relation to the carrying on by the PRA-authorised person of a regulated activity, or
	(ii) in the case of an authorised person that is a bank, an employee of the bank.
	(4) In this section “relevant requirement” means a requirement—
	(a) imposed by or under this Act, or
	(b) imposed by any qualifying EU provision specified, or of a description specified, for the purposes of this subsection by the Treasury by order.
	(5) Condition C is that—
	(a) the person has at any time been a senior manager in relation to a PRA-authorised bank,
	(b) there has at that time been (or continued to be) a contravention of a relevant requirement by the bank, and
	(c) the senior manager was at that time responsible for the management of any of the bank’s activities in relation to which the contravention occurred.
	(6) But a person (“P”) is not guilty of misconduct by virtue of subsection (5) if P satisfies the PRA that P had taken such steps as a person in P’s position could reasonably be expected to take to avoid the contravention occurring (or continuing).
	(7) For the purposes of subsection (5)—
	“senior manager”, in relation to an authorised person that is a bank, means a person who has approval under section 59 to perform a designated senior management function in relation to the carrying on by the bank of a regulated activity;
	“designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).
	(8) In this section—
	“approved person”—
	(a) means a person in relation to whom—
	(a) the PRA has given its approval under section 59, or
	(b) the FCA has given its approval under section 59 in respect of the performance by the person of a relevant senior management function in relation to the carrying on by a PRA-authorised person of a regulated activity, and
	(b) in relation to an authorised person, means a person in relation to whom approval under section 59 is given on the application of the authorised person;
	“employee”, in relation to a person, has the same meaning as in section 64A;
	“PRA-authorised bank” means a bank that is a PRA-authorised person;
	“relevant senior management function” means a function which the PRA is satisfied is a senior management function as defined in section 59ZA (whether or not the function has been designated as such by the FCA).””

Lord Newby: My Lords, I beg to move.
	Amendment 54A (to Amendment 54) not moved.
	Amendment 54 agreed.
	Amendments 55 to 57
	 Moved by Lord Newby (LD)
	55: After Clause 12, insert the following new Clause—
	“Meaning of “bank”
	(none) In Part 5 of FSMA 2000 (performance of regulated activities), after section 71 insert—
	““Bank”
	71A Meaning of “bank”
	(1) In this Part “bank” means a UK institution which has permission under Part 4A to carry on the regulated activity of accepting deposits.
	(2) But “bank” does not include an insurer.
	(3) In this section—
	(a) “UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom;
	(b) “insurer” means an institution which is authorised under this Act to carry on the regulated activity of effecting or carrying out contracts of insurance as principal.
	(4) Subsections (1) and (3)(b) are to be read in accordance with section 22, taken with Schedule 2 and any order under section 22.””
	56: After Clause 12, insert the following new Clause—
	“Recording information about senior managers
	(1) Section 347 of FSMA 2000 (the record of authorised persons etc.) is amended as follows.
	(2) In subsection (2)—
	(a) in paragraph (g), after sub-paragraph (iii) insert—
	“(iv) in a case where the relevant authorised person is a bank, whether or not the person is a senior manager;”;
	(b) after that paragraph insert—
	“(h) in the case of an approved person who is a senior manager in relation to an authorised person that is a bank—
	(i) whether a final notice has been given to the person under section 390; and
	(ii) if so, any information about the matter to which the notice relates which has been published under section 391(4).”
	(3) After subsection (8) insert—
	“(8A) In this section—
	“senior manager”, in relation to an authorised person that is a bank, means a person who has approval under section 59 to perform a designated senior management function in relation to the carrying on by the bank of a regulated activity,
	“bank” has the same meaning as in Part 5 (see section 71A), and
	“designated senior management function” means a function designated as a senior management function under section 59(6B) or (6C).””
	57: After Clause 12, insert the following new Clause—
	“Consequential amendments relating to Part 4
	(none) Schedule (Consequential amendments relating to Part 4) (which contains further amendments relating to the provisions of this Part) has effect.”
	Amendments 55 to 57 agreed.
	Amendment 58
	 Moved by Lord Newby (LD)
	58: After Clause 12, insert the following new Clause—
	“Offence relating to decision that results in bank failure
	(1) A person (“S”) commits an offence if—
	(a) at a time when S is a senior manager in relation to a bank (“B”), S—
	(i) takes, or agrees to the taking of, a decision by or on behalf of B as to the way in which the business of a group bank is to be carried on, or
	(ii) fails to take steps that S could take to prevent such a decision being taken,
	(b) at the time of the decision, S is aware of a risk that the implementation of the decision may cause the failure of the group bank,
	(c) in all the circumstances, S’s conduct in relation to the taking of the decision falls far below what could reasonably be expected of a person in S’s position, and
	(d) the implementation of the decision causes the failure of the group bank.
	(2) A “group bank”, in relation to a bank (“B”), means B or any other bank that is a member of B’s group for the purpose of FSMA 2000 (see section 421 of that Act).
	(3) Subsections (1) and (2) are to be read with the interpretative provisions in section (Interpretation of terms used in offence).
	(4) A person guilty of an offence under this section is liable—
	(a) on summary conviction—
	(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;
	(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;
	(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;
	(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.”

Lord Newby: My Lords, we now turn to one of the key recommendations of the PCBS: the introduction of a new criminal offence of reckless misconduct in the management of a bank. The commission argued convincingly that existing sanctions for financial crime,
	“do not cover the apparent mismanagement and failure of control by senior bankers”,
	and that the risk of a criminal conviction and a prison sentence would give senior officers of UK banks pause for thought. As the Government made clear in our response to the commission, we believe that there is a strong case for the introduction of such an offence. Serious bank failure results in severe economic disruption and considerable losses for taxpayers.
	In line with the commission’s recommendations, the new offence will be applicable only to individuals who are covered by the new senior managers regime. Senior managers could be liable if they take a decision which leads to the failure of the bank or fail to take steps available to them to prevent such a decision being taken. The offence will apply only to behaviour that falls far below the standard that could reasonably be expected of a person in their position, which is a similar test to that for corporate manslaughter. In addition, at the time when the decision was taken the senior manager must have been aware of a risk that its implementation may cause the failure of the bank. Limiting the application of the offence to individuals who are covered by the senior managers regime, and the precise definition of when a bank has failed for the purposes of the offence, mean that those affected should be in no doubt as to their potential criminal liability.
	The maximum sentence for the new offence will be seven years in prison and/or an unlimited fine on indictment. This is in line with the recommendation of the commission, which argued that the offence must carry the possibility of a prison sentence to be effective, as with other offences of similar gravity under FiSMA, such as misleadingly manipulating benchmarks such as LIBOR. The commission said that it,
	“would expect this offence to be pursued in cases involving only the most serious of failings ... and not predominantly against smaller operators where proving responsibility is easier, but the harm is much lower”.
	The Government endorse this position, and the offence will therefore apply to banks and building societies but not to credit unions.
	One area where we do not agree with the commission is on its proposal that there should be a time limit of one year within which criminal charges could be brought following successful civil enforcement action. I have considerable sympathy with its arguments that laws forbidding disclosure of information with regard to criminal proceedings could mean that the publication of information around a bank failure—information
	that it would be in the public interest to release—would be suppressed until court proceedings had concluded. However, it is very unusual to have a time limit on bringing charges relating to serious criminal offences such as this and, given the likely complexities of many of the cases that will be tried under this offence, such a time limit may seriously limit the regulators’ ability to prosecute. The offence introduced by this amendment will be in a vital tool in ensuring that those at the top of our banks are focused on taking prudent and measured decisions and in holding them account for reckless behaviour that falls short of that standard.
	I now address the amendments to this group. On Amendment 58, the PCBS recommended an offence of reckless misconduct. In order for a person’s behaviour to be reckless, they must be aware of the risks that they are taking. The insertion of the text proposed by Amendment 58A would allow for the possibility that a manager acting without knowledge of the possible effects of their actions could also be guilty of the offence. A key aspect of making an offence prosecutable is that the person concerned must know that they are at risk of committing the crime. There are other, civil, sanctions, which FSMA provides for, which can apply if a senior manager has acted incompetently rather than criminally recklessly. For example, if a senior manager in a bank fails to comply with binding statements of principle issued by the regulator, they can be penalised. These penalties can be heavy, including up to an unlimited fine. In light of this, I hope that the noble Lord will withdraw his amendment.
	On Amendment 58B, we have thought very carefully about the wording of this offence, and have built upon robust precedent where possible. Referring to conduct that is “far below” that which would be expected has precedents in the Law Commission’s proposal for a statutory offence of killing by gross carelessness, and in legislation creating the offence of corporate manslaughter. So we have used this particular phrase knowing that it works and can be effectively interpreted by the courts. The offence must be precise enough to comply with principles of legal certainty and fairness. There is no precedent in UK criminal law for criminalising behaviour that is merely unreasonable. To do so would amount to an indiscriminate diffusion of criminal liability in a way that would make it hard for individuals to know with sufficient certainty when they might be committing an offence.
	We also need to be very aware of the incentives that the offence creates. There would be a considerable risk that a broader, vaguer offence would put talented executives off taking on senior management positions, and the Government are keen to get the balance right between punishing genuine recklessness and supporting appropriate risk-taking. This would be a particular risk when people consider whether to take on a senior role in a troubled bank just when it was most important for it to have highly capable leadership.
	I understand that the intention of Amendment 58C is to make the offence more objective. First, the reasonableness test as currently drafted gives a clear, objective test of when the crime has been committed by a senior manager. It will enable the jury to consider whether the defendant’s behaviour was reasonable,
	taking into account the position they were actually in. To be precise, it requires the jury to consider what conduct could, in all the circumstances, reasonably be expected of a person holding the position in the bank which that individual senior manager held.
	This amendment would, arguably, remove this clarity and ask the jury to consider whether the person’s behaviour was reasonable in a more general way. Such a test would be likely to be harder to apply to particular cases, and in some cases could be inappropriate. It is important to note that there can be no one clear definition of what could be expected of a person in a senior management position in a bank. Such drafting fails to take account of, for example, which particular senior management role the defendant was undertaking, in what kind of banking institution and what the institution’s business model was. This amendment would change the current reasonableness test to one that it would be extremely difficult for a jury to apply in any meaningful way, making the offence less certain and prosecution more problematic.
	On Amendment 59A, the Government are introducing this offence to close a gap in financial crime legislation. There are currently no criminal powers available to sanction senior managers who have recklessly caused their banks to fail. This is a clear shortcoming, which we are now remedying. As we have already debated, though, offences already exist for failing to comply with the Fraud Act, the Proceeds of Crime Act or the Money Laundering Regulations. Individuals can be prosecuted under these Acts, and any sentencing following the successful prosecution of these offences would take into account how serious these breaches were, so it is difficult to see what benefit this amendment would add. Further, if a bank is found to have committed an offence under the Fraud Act 2006 or under the Money Laundering Regulations 2007, senior managers of the bank could also be found guilty if they have consented to or connived in the commission of the offence by the bank. As previously noted, the new senior managers regime will also provide enhanced accountability in these areas. So there is no lack of individual accountability in cases where banks fail to comply with the requirements of the 2006 Act or the 2007 Regulations.
	We believe that we have introduced a sensible definition and an important piece in the jigsaw of improved accountability for individuals by our amendments, and I commend them to the House.
	Amendment 58A*
	 Moved by Lord Brennan
	58A*: After Clause 12, line 10, after “aware” insert “or should have been aware”

Lord Brennan: My Lords, I will deal briefly with these amendments concerning the creation of an offence in relation to a decision that results in bank failure. The amendments are designed to test the definitional value of the present clause, and work on the realistic expectation that once this becomes statute there will be a very much reduced prospect of people committing such an offence, particularly if they face up to seven years in prison on indictment. So the purpose of this
	section is more of a deterrent, although it has a punitive value if there is a transgression. It is with that in mind that these amendments were put forward.
	I shall address Amendments 58A, B and C in turn. My reading of this draft offence does not include any use of the words “reckless” or “recklessness”. It would be unwise in legal terms to equate its contents with some broad description to be used as a synonym, or understood synonym, of “recklessness”, which is a term of art in the law.
	Amendment 58A deals with the following risk. It is likely that there will be more cases of one or more people being involved—two, three, four, five, whatever it might be—than a singleton defendant in a bank failure. If the bank is operating properly, it is almost inconceivable that one person could engineer its failure without the knowledge of others. Therefore I predict that if they are brought to trial, one or more of them will say, “I did not know; it was that man, not me.” This particular amendment is designed to cover that situation. “Should have been aware” infers “should have been aware by reason of competent and honest practice of appropriate banking standards”. It is an entirely reasonable test, and it gets over the point that the noble Lord, Lord Lawson, was telling us about earlier, of elective ignorance: “I don’t want to know”; or wilful blindness: “I don’t want to know because I’m never going to ask”. Many would think that both of those situations involve culpability. You cannot get away with it by shutting your mind to that which you should have known by professional standards and proper competence. So the time between now and Report should involve a consideration of how this clause is to be used if it becomes an offence where there is more than one defendant. Even if there is only one, he can blame someone who is not before the court.
	I now turn to Amendment 58B. Corporate manslaughter is rarely brought to court. It is normally brought to court in respect of a flagrant breach of health and safety standards, usually in the construction industry, energy, or whatever it might be that causes a terrible accident. In other words, the incident speaks for itself. The word “far” in that context adds nothing to the impact of the event, and I suspect that most juries will not pay any attention to the word “far” when they are directing—they will look at the event. Between now and Report I want the Government to consider this question: how on earth will a judge directing a jury interpret the word “far” in respect of refined banking practices that may cause a concatenation of events that lead to a failure? It is an extremely loose word to use in this context, and I invite reconsideration of it or its omission.
	Amendment 58C is directed, as was suggested, at creating an objective test. The wording that is used,
	“a senior management position in relation to a bank”,
	makes it an entirely objective test. It prevents a person who is charged claiming that in his particular context, looking at it from his particular point of view, he did his best. That is simply not enough. The greater the responsibility, the more objective the test should be in this banking context.
	I turn to Amendment 59A. I will not repeat the point about the statutes, although they are referred to. However, I invite the House to note that there is an intention here to deal with something where there has been a serious or systematic failure, not just in respect of those statutes but in respect of such other financial compliance obligations as may be specified in rules made by the FCA. In other words, the matter arises in respect of people who seriously fail in their duty to comply with the appropriate standards and competences envisaged by this section. It is not likely, but it is conceivable, that there will be situations in which a failure occurs because of a system collapse in which particular people were responsible, which system had been carried on systematically or involved a serious breach of compliance requirements by the FCA.
	I close with the following thought. One wants to have on the statute book an offence that makes people think when they are in their job, “I’m not going to jail for this; I won’t take the risk”. I beg to move.

Lord Eatwell: My Lords, my noble friend Lord Brennan has made some powerful points. I draw the attention of the House to the fact that, as in the previous group of amendments we were discussing, these offences will apply only to institutions that accept deposits. It therefore leaves out a whole series of institutions that I believe the noble Lords, Lord Turnbull and Lord Lawson, would also feel should be included under these offences.

Lord Phillips of Sudbury: My Lords, I commend the Government on bringing forward Amendment 58. It has been a source of great public disaffection that over the past few years the number of people in the City responsible for some really gross acts of criminality who have been brought to book could be measured on the fingers of two hands; indeed, the noble Lord, Lord Turnbull, referred earlier to the pathetic enforcement statistics. This provision is therefore vital. However, I have two thoughts regarding the way in which this is framed: first, that it is too severe, and secondly, that it is too light, or slight.
	The title of the clause is:
	“Offences relating to decision”—
	I suppose they mean “a decision”—
	“that results in bank failure”.
	I note that in two places in the clause itself it talks about a decision that “causes” a bank failure. There is a difference in the meaning of the words, “resulting” in a bank failure and “causing” it. The word “causing” is absolutely direct in a way that “resulting” is not. Perhaps the Minister might like to look at that.
	The other point that strikes me about the wording of this clause is in Amendment 58(1)(c) and (d). Paragraph (c) says,
	“in all the circumstances, S’s conduct in relation to the taking of the decision falls far below what could reasonably be expected of a person in S’s position”.
	The noble Lord, Lord Brennan, has already made points on this. That is unsatisfactory in another sense. However, if we are—as we are—making criminal offences
	out of the conduct defined in this new clause, there should be a clear indication that no one can be convicted unless there is a want of integrity or honesty on the part of the person convicted. That is a fundamental principle of British criminal law. However concerned we are, and I certainly am, to bring to book the many malefactors who have ruined the reputation of the City in recent years, one cannot do it at the cost of changing or undermining that fundamental test of criminality, intent, bad faith, dishonesty or want of integrity—call it what you like. The language here does not clearly require that intent and want of integrity. There are cases that would fall within Amendment 58 that would not satisfy the normal test of mens rea in criminal offences.
	I will refer briefly to Amendment 60 in this group, which is about the institution of proceedings. Subsection (4) says:
	“In exercising its power to institute proceedings for an offence, the FCA or the PRA must comply with any conditions or restrictions imposed in writing by the Treasury”.
	Those are the words. I cannot see anywhere, in this amendment or elsewhere, a requirement for the conditions or restrictions imposed in writing by the Treasury to be made public. Surely it is a fundamental requirement of restrictions or conditions that will potentially lead firms and individuals into the criminal courts that those conditions or restrictions be made public.

Baroness Noakes: My Lords, my first thought on seeing this new offence relating to bank failure was to be mildly appalled at something that might possibly impinge on one’s personal life, but I have tried to put that to one side and to look at this clause dispassionately. What concerns me is a point raised by the noble Lord, Lord Phillips of Sudbury, which relates to causation. That is mentioned several times in this clause, but one of the conditions in subsection (1)(d) of the new clause proposed by Amendment 58 is that,
	“the implementation of the decision causes the failure of the group”.
	Is it clear that single decisions cause failures of the nature that we are talking about? I ask him to think, in the context of the failures that existed in the wake of the 2008 financial crisis, whether any one of those, had they occurred today and been dealt with under existing legislation, could have technically satisfied the wording in this offence. Even in the simplest case of failure, which was probably Northern Rock, it was not as simple as one decision or even one group of decisions. There were multiple points of decision which contributed. Certainly, when one gets to something as complicated as the failure of Lehman Brothers, I would be absolutely astonished if anybody could have pointed to one decision causing one failure.

Lord Newby: My Lords, I will try to sum up some of those points. One of the big challenges that we faced in producing the exact terms of this amendment was to produce a sanction which is a credible offence and could be successfully prosecuted. Setting the conditions to include that in all the circumstances the individual’s conduct fell far below what could reasonably be expected of them and that they were aware of the
	risk that a decision could cause the bank to fail gives us the clarity that we need. This will capture behaviour which in normal parlance or in normal view would be considered reckless.
	The noble Lord, Lord Brennan, said that he was keen that this new offence should make people think. It will make people think, but equally it must have within it a degree of certainty that means that an offence could be prosecutable. This necessarily circumscribes the way in which we define it.
	I can confirm to the noble Lord, Lord Eatwell, that his interpretation of the provisions in the Bill is correct.

Lord Lawson of Blaby: May I ask my noble friend one question? The commission’s recommendations refer to this as reckless misconduct. The word “reckless” is very important. Speaking to this, the Minister used the word “reckless”, but I do not see it in the amendment. Can he explain why?

Lord Newby: Yes, I hope I can. As I was just saying, we had to put in the Bill a form of words that would create a credible offence that could be successfully prosecuted. The two requirements that an individual’s conduct had to fall far below what could reasonably be expected of them and that they were aware of the risk they were taking, would, in the view of the lawyers, capture recklessness. It is a definition of recklessness without the use of the word. The wording gives a greater chance of having a credible offence than using the word “reckless”. It is an attempt to make sure that we have got something that we could use, while capturing the concept.
	The noble Lord, Lord Phillips, asked about the difference between the heading and the text. My understanding is that headings of sections of the Bill do not constitute part of the Bill for legal reasons. It may be possible to improve the heading, but the noble Lord should not worry about it. The noble Lord asked whether any restrictions on conditions which were imposed might be made public. At first sight, I cannot see any reason why that should not be the case, but I will write to him to confirm the position.
	We have had a good debate on these amendments. I commend the government amendments to the House.

Lord Phillips of Sudbury: I do not think the Minister has adequately dealt with the point made by my noble friend Lady Noakes and partly by myself. Surely it is an inescapable point that if you say that someone has to cause the failure of a bank, that is a direct and hugely demanding test. If it had said instead that the decision significantly contributed to the failure of a bank then I think my noble friend and I would be content because it satisfies justice as well as practicality. Is he not concerned that this will undermine the whole purpose of this amendment?

Lord Newby: I do not think it undermines the whole purpose of the amendment. It obviously reduces the scope of cases which can be brought under this amendment, but the challenge that the lawyers have had is to make sure, as far as possible, that there is the
	certainty of what constitutes an offence, which is required under human rights legislation. That has been one of the principle drivers for the particular form of words that we have got. I accept the noble Baroness’s point that in some cases there will be a whole raft of contributory decisions which over a period lead to a bank failing. It will be, I accept, more difficult to bring a prosecution in those cases. It is not inconceivable, however, to argue, without having any particular case in mind, that if a senior executive of a bank persuaded the board to make an acquisition knowing that it was a very risky acquisition which if it went wrong could bring the bank down, that decision would fall squarely, as I understand it, within the scope of the Government’s proposals. I do not think it is outside the realms of possibility that a senior manager in the bank might take such a decision.

Lord Brennan: My Lords, I raise the question briefly about recklessness for the Government to consider. Let us suppose a senior manager reports to a chief executive officer saying, “I want to tell you about the following risks that would arise if decision A,B or C is taken”. The CEO is of the imperial kind and tells him not to waste his time, that he is not interested in risk, and to get on with it and make the decision. In those circumstances, the present legislation as it is drafted would justify a decision to prosecute the manager because he went ahead despite the risk, but not the CEO because he never actually knew what the risk was; he just ordered the junior to go ahead and do it.
	The point about recklessness, which the lawyers advising Ministers should consider again, is what you do in the more likely scenario in banking, not of a round table where people are all carefully considering risks but of high speed commercial dynamics in which somebody forces a decision to be taken, not caring what the risk consequence is. How do you deal with that?
	In the mean time, I beg leave to withdraw my amendment.
	Amendment 58A, as an amendment to Amendment 58, withdrawn.
	Amendments 58B and 58C, as amendments to Amendment 58, not moved..
	Amendment 58 agreed.
	Amendment 59
	 Moved by Lord Newby
	59: After Clause 12, insert the following new Clause—
	“Interpretation of terms used in offence
	(1) This section has effect for the interpretation of section (Offence relating to decision that results in bank failure).
	(2) “Bank” means a UK institution which has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits.
	(3) But “bank” does not include—
	(a) an insurer, or
	(b) a credit union.
	(4) In subsections (2) and (3)—
	(a) “UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom;
	(b) “insurer” means an institution which is authorised under FSMA 2000 to carry on the regulated activity of effecting or carrying out contracts of insurance as principal;
	(c) “credit union” means a credit union as defined by section 31 of the Credit Unions Act 1979 or a credit union as defined by Article 2(2) of the Credit Unions (Northern Ireland) Order 1985.
	(5) Subsections (2) and (4)(b) are to be read in accordance with section 22 of FSMA 2000, taken with Schedule 2 to that Act and any order under that section.
	(6) A person is a “senior manager” in relation to a bank if, under an arrangement entered into by the bank, or by a contractor of the bank, in relation to the carrying on by the bank of a regulated activity, the person performs a function that is designated as a senior management function—
	(a) by the FCA under subsection (6B) of section 59 of FSMA 2000 (approval for particular arrangements), or
	(b) by the PRA under subsection (6C) of that section.
	(7) A bank (“B”) is to be regarded as failing where—
	(a) B enters insolvency,
	(b) any of the stabilisation options in Part 1 of the Banking Act 2009 is achieved in relation to B, or
	(c) B is taken for the purposes of the Financial Services Compensation Scheme to be unable, or likely to be unable, to satisfy claims against B.
	(8) In subsection (7)(a) “insolvency” includes—
	(a) bankruptcy,
	(b) liquidation,
	(c) bank insolvency,
	(d) administration,
	(e) bank administration,
	(f) receivership,
	(g) a composition between B and B’s creditors, and
	(h) a scheme of arrangement of B’s affairs.”
	Amendment 59A, as an amendment to Amendment 59, not moved
	Amendment 59 agreed.
	Amendment 60
	 Moved by Lord Newby
	60: After Clause 12, insert the following new Clause—
	“Institution of proceedings
	(1) In this section “an offence” means an offence under section (Offence relating to decision that results in bank failure).
	(2) Proceedings for an offence may be instituted in England and Wales only—
	(a) by the FCA, the PRA or the Secretary of State, or
	(b) by or with the consent of the Director of Public Prosecutions.
	(3) Proceedings for an offence may be instituted in Northern Ireland only—
	(a) by the FCA, the PRA or the Secretary of State, or
	(b) by or with the consent of the Director of Public Prosecutions for Northern Ireland.
	(4) In exercising its power to institute proceedings for an offence, the FCA or the PRA must comply with any conditions or restrictions imposed in writing by the Treasury.
	(5) Conditions or restrictions may be imposed under subsection (4) in relation to—
	(a) proceedings generally, or
	(b) such proceedings, or categories of proceedings, as the Treasury may direct.”
	Amendment 60 agreed.
	Amendment 60A
	 Moved by Lord Newby
	60A: After Clause 12, insert the following new Clause—
	“Part 5Regulation of payment systems
	Overview
	(1) This Part contains provision for the establishment of a new body (the “Payment Systems Regulator”) to exercise functions in relation to payment systems.
	(2) Section (The Payment Systems Regulator) provides for the establishment of the Payment Systems Regulator.
	(3) Sections (Meaning of “payment system”) and (Participants in payment systems etc) contain definitions of “payment system” and related terms.
	(4) Sections (Designation orders) to (Revocation of designation orders) make provision about designating a payment system as a regulated payment system.
	(5) Sections (Regulator’s general duties in relation to payment systems) to (Regulatory principles) contain provision about the general duties of the Payment Systems Regulator under this Part.
	(6) Sections (Directions) to (Amendments relating to Regulator’s competition powers) confer various regulatory and competition functions on the Payment Systems Regulator.
	(7) Sections (Complaints by representative bodies) to (Complaints: guidance) contain provision about the making of complaints to the Payment Systems Regulator.
	(8) Sections (Meaning of “compliance failure”) to (Enforcement of requirement to dispose of interest in payment system) contain provision about enforcement and appeals.
	(9) Sections (Power to obtain information or documents) to (Reports) contain supplementary powers.
	(10) Sections (Duty of regulators to ensure co-ordinated exercise of functions) to (Power of PRA to require Regulator to refrain from specified action) contain provision about the Payment Systems Regulator’s relationship with other regulators.
	(11) Sections (Regulator’s general duty to consult) to (Competition scrutiny) contain provision about consultation, accountability and oversight.
	(12) Sections (Relationship with Part 8 of the Payment Services Regulations 2009) to (Interpretation) contain miscellaneous and supplemental provision.”

Lord Newby: My Lords, these amendments will create a new competition-focused utility-style regulator equipped with the full range of powers to tackle the deeply rooted issues in the market for payment system. The Government have serious concerns about the structure of the payment systems market, which sees problems in three main areas: competition, innovation and responsiveness to consumer needs.
	Under the existing self-regulatory framework, there is no systematic oversight holding the big banks, payment scheme companies and infrastructure providers to account. Large banks jointly own the payment system companies and the infrastructure provider, and they dominate the Payments Council, the pseudo-regulatory body responsible for setting industry strategy. This allows the incumbent
	players to erect barriers to entry, preventing challenger banks from competing on a level playing field. It also limits incentives for the systems to innovate and respond to consumer needs, as there is no competitive advantage to any bank in doing so. There are also competition concerns in the international card schemes, as highlighted by the European Commission’s proposed regulation capping multilateral interchange fees. The card schemes have an incentive to increase interchange fees to encourage banks to issue their cards, but merchants have little opportunity to influence this process, and have no real option but to accept the major payment cards.
	The first objective of the regulator will be to address the problems arising from imperfect competition. To tackle barriers to entry in banking arising from access conditions for the payment schemes, the payment systems regulator will have powers to tackle anti-competitive fees, terms and conditions, and to mandate access to the core systems. If deemed necessary, it will be able to break up the current ownership structures to create a landscape where fair competition can thrive. Secondly, the regulator will examine issues relating to innovation. Payment systems are characterised by strong network effects. Just as owning a telephone brings little benefit if no one else has one, each user gains added value from a payment system with the addition of further users. The shared ownership of the interbank payment systems by the banks reinforces this, because no single bank stands to gain an advantage over the others by investing in and developing the systems. This tendency to underinvest means that, while there have been some important innovations in recent years, they have too often required the Government’s or the OFT’s intervention to drive change, and the industry has taken too long to realise their full benefits.
	The Government want to challenge underinvestment and lack of innovation in the co-owned systems. They want a payments industry that rewards entrepreneurial behaviour and develops systems that are innovative, efficient and effective. Therefore, the regulator will have an objective to promote the development of, and innovation in, payment systems.
	The third problem identified in the market is the failure of the industry to respond to end-user needs. This, too, stems from the market’s network characteristics and ownership structures, which mean that failing to respond to end-user needs incurs no competitive disadvantage to any of the banks. This makes it possible for the banks to take decisions about the provision of services, even if this is directly against the interests of the wider public, as we saw in 2009 when the industry attempted to abolish cheques. The Government want to see a market where payment systems work for end-users, rather than one that serves only the self-interest of the big established banks.
	Successive Governments and UK regulatory authorities have been trying to find a viable solution for these problems for more than a decade, dating back to Sir Don Cruickshank’s report to the Treasury in 2000 recommending that the Government create a utility-style regulator for payment systems. Instead, however, the process resulted in the creation of the industry-dominated Payments Council. In February, the Chancellor announced that the Government would introduce a new regulator
	to open up payment systems. Over the summer, the Parliamentary Commission on Banking Standards endorsed the Government’s commitment to bring payment systems into formal regulation. In their response to the final report of the PCBS, the Government confirmed that they will ask the payments regulator, once established, to urgently examine account portability.
	I turn to the details of these amendments. They establish the payment systems regulator as a separate legal entity established by the FCA. This provides bespoke objectives and powers to address the distinctive problems in the market for payment systems, and allows for the benefits of close co-ordination with the FCA. The objectives of the regulator will be to promote competition, innovation and the interests of service users. The payment systems regulator will oversee all domestic payment systems brought into scope by being designated by HM Treasury. Initially, it is expected that the main interbank schemes and international card schemes will be designated. Once a system is designated, the regulator will have powers over that system’s operators, infrastructure providers and payment service providers that provide payment services using the system. This new regime will not affect the existing role of the Bank of England under the Banking Act 2009 in overseeing recognised interbank systems for stability purposes. The Bank will be excluded from the scope of regulation in its current capacity as a payments system participant. There will also be a duty for the co-ordinated exercise of functions between the PSR, FCA, Bank and PRA, and a memorandum of understanding setting out how this will happen.
	The payment systems regulator will be equipped with a toolkit of regulatory powers enabling it to address the deep, structural issues causing problems in the market for payment systems. To open up access and encourage greater competition, the regulator will be able to intervene and require changes to any anti-competitive fees, or terms and conditions of an agreement for access to a regulated system. It will have powers to require the provision of both direct and indirect access to payment systems. It will also have competition powers to enforce Competition Act 1998 prohibitions against anti-competitive agreements and abuse of dominance, and to make market investigation references to the Competition and Markets Authority. These competition functions will be exercisable concurrently with the CMA. Ultimately, if the payment systems regulator determines that the current ownership structures need to be broken up to achieve adequate competition, it will have the power to require disposals of interests in operators of regulated systems.
	In furthering access and competition, the regulator will also address underinvestment by the industry and the slow pace of innovation. There is no shortage of players who want to be able to innovate in this space, and with greater access to the core systems and infrastructure, inventive, entrepreneurial players will be able to bring propositions to market when they have previously been blocked from doing so. Greater competitive pressure on industry participants can be expected to drive up standards and force payment system owners, operators and payment service providers to deliver improvements in the payment systems space. However, in cases where market forces are still unable
	to play out, if the big incumbent banks resist, the regulator will have powers to drive through improvements as it sees fit, by issuing directions that require or prohibit action by participants in regulated systems, and this includes requiring specific developments to be pursued.
	In advancing its service-user objectives, the regulator will be able to require or prohibit the taking of action in the operation, management and development of payment systems. This means that it can prevent the industry ignoring the legitimate needs of consumers—for instance, by trying to abolish cheques. The payment systems regulator will be able to publish details of a compliance failure and to impose financial penalties; if deemed necessary, it will be able to require owners of payment systems to dispose of their interests in them, subject to Treasury approval.
	Taken together, these amendments create a strong, competition-focused regulator, which will have the right objectives, functions and powers to ensure that conditions in the payment systems market are such that challenger banks and innovative non-bank players are given a level playing field to challenge the big incumbent banks; innovation takes place to facilitate useful new services for businesses and consumers; and decisions on the provision of payment options are taken in the interests of all users of payment systems, not just the interests of the big banks. I commend these amendments to the Committee.

Lord Eatwell: My Lords, I have a number of queries about another set of amendments that are longer than the original Bill. First, I support entirely the notion of establishing a payments regulator, but why is it being established as yet another independent regulator? Surely, covering the activities that it refers to—the nature of markets and settlement systems, which are akin to clearing and settlement in business and financial services in general—is the clear role of the FCA. Why are we establishing an extra organisation? After all, one thing that we have learnt through the financial crisis is that communication between organisations is less than perfect, even in the best of all possible worlds. Surely it would be better if this was simply a division of the FCA rather than an organisation having, as the schedule makes clear, an entirely separate board and chairman. This seems to be a proliferation of institutions with no purpose when we already have the FCA there to do the job.
	Secondly, I want to explore the competition objective a little more. It is very clear that enhancing competition by giving access to payment systems is highly desirable. It is also clear that users might benefit from competition. What is not terribly clear is whether we want to have very diverse structures in the fundamental architecture of the payments system, which is absolutely core to the banking system. It recalls to me the early days of the railways when there were more than a dozen railways from London to Brighton, as they all competed with one another. This was not conducive either to the effective development of the railway companies or the provision eventually of a proper service to passengers. Therefore, I am a little puzzled, given the essential role of the payments architecture as being absolutely fundamental to the operation of the banking system,
	as to whether we want to see diverse structures and how they might be related to one another. I wonder what the Government’s thoughts are on this.
	My third point also refers to the nature of fundamental market infrastructure. Within these new clauses it is the responsibility of the regulator to assure maintenance of service. However, another part of the Bill, which we will look at next, is labelled “fundamental market infrastructure” and is also devoted to the maintenance of market service more generally. The responsible authority for maintaining market service is different in the two cases. In one it is the Treasury; in the other it is the Bank of England. Why do we have two different authorities responsible for the maintenance of fundamental market infrastructure when the payments system is undoubtedly part of fundamental market infrastructure? It seems to me that, in inserting this desirable measure into the Bill, the fact that it has created some ambiguities and inconsistencies has not been noticed.

Lord Turnbull: My Lords, this is another example of where we should be careful what we wish for. The Treasury committee and the parliamentary commission both welcomed the Government’s damascene conversion —that was what it was called in our report—announced in the Budget last year to create a payments regulator. However, this has been done in a quite extraordinary way with some 40 pages of amendments having been produced only two or three days before we were due to examine them. Although the new clauses were published following a process of consultation, there does not seem to be time for anyone in Parliament or anyone affected by them to scrutinise them. How can we tell whether what has been drafted is workable, reflects the views expressed in the consultation or will deliver what the Government want? From a procedure point of view, the usual channels might consider whether the gap between Committee and Report might be rather longer than normal so that we get a chance to look at not just this but also at the bail-in provisions as we have only had a small amount of time to consider them.
	Through much of the consideration in Committee my view has been pretty close to that of the noble Lord, Lord Eatwell. However, as regards whether this body should be independent or part of the FCA, I am in the other camp. One of the key features here is that there is doubt about whether competition comes high enough up the FCA’s priorities. We shall come to later amendments whereby the parliamentary commission wanted to push competition higher up the FCA’s priorities. The proposal before us serves the interests of competition better than by making the body under discussion another department within the FCA, so there is another side to the case.

Lord Flight: I support these amendments. The biggest part of the Bill is concerned with creating competition in the banking industry. The thought had crossed my mind that we are proliferating yet another regulator but I am persuaded by the argument advanced by the noble Lord, Lord Turnbull, that it might get lost
	within the FCA which has many other things to focus than competition. However, I make the small point that in the past year the Payments Council has done a good job in bringing in the ability to transfer a bank account within seven days. Although the new body will be more representative, the Payments Council should not be overcriticised for what it has achieved while it has existed.

Lord Higgins: Those of us who have been through many legislative processes may be a little appalled to find that it takes 40 pages of amendments to establish a payments regulator. I wish to ask one or two simple questions. On whom will the cost of this regulation fall? Have we an estimate of what it is likely to be? The Minister referred to what I believe was the lamentable attempt to get rid of the cheque system. Will this proposal stand up if the cheque system is changed? As far as international transactions are concerned, will the regulator be concerned with payments which are made internationally?

Baroness Noakes: My Lords, my initial reaction to these new clauses was that they constituted a sledgehammer to crack a nut. It seems to me that creating another regulator in a territory which is well occupied by regulators is unnecessary in this case. To that extent I support the noble Lord, Lord Eatwell. One has only to look at government Amendment 60YYH to see that the new regulator will have to co-ordinate with the Bank of England, the FCA and the PRA. These bodies already have to co-ordinate among themselves for different purposes in any event. I think that the world is slightly going mad on this. My noble friend Lord Higgins asks who will pay for the regulator. Obviously, the people who will operate the payment systems will pay for the regulator. I suspect that this arrangement will be more expensive than the existing Payments Council system. I do not know how much more expensive it will be. I believe that we should be told what the costs are because they will inevitably end up being paid for by the businesses and individuals who use payments systems. There is no one else.
	I have one question with two parts for my noble friend which relates to the powers in government Amendments 60S and 60T. One part relates to the power to require access to payment systems. I completely understand that. If you are to promote competition, you need powers to require access. The other relates to the variation of agreements relating to payment systems to take out anti-competitive elements in arrangements that have already been made. Both those measures could have financial consequences for those who operate payment systems. I do not object to the principle involved, but where in these 40 pages of amendments can I find the principles that the payments regulator has to use in deciding how he approaches those decisions? I assume that he cannot have unlimited discretion to decide who will pay for what and on what terms. However, there appear to be no basic financial principles underpinning this arrangement in the 40 pages of amendments, which seems to me a lacuna.

Lord Phillips of Sudbury: My Lords, for the record, these amendments cover exactly 52 pages. The only other point I wish to make—I agree with the noble
	Lord, Lord Eatwell, here—is that, despite the payment system having its own regulator, new subsection (3) of government Amendment 60B states:
	“The FCA must take such steps as are necessary to ensure that the Payment Systems Regulator is, at all times, capable of exercising”,
	its functions. It has the job of overseeing the regulator, so why on earth does it not do the job itself?

Lord Sharkey: My Lords, I have two simple questions. One is to do with the innovation objective. Government Amendment 60M states:
	“The innovation objective is to promote the development of, and innovation in, payment systems”.
	It just occurred to me to ask whether there is any example of a regulator successfully promoting innovation. I would be interested to hear the Minister’s reply to that.

Lord Lawson of Blaby: It would be an innovation.

Lord Sharkey: An innovation regulator.

Lord Lawson of Blaby: No, it would be an innovation.

Lord Sharkey: Government Amendment 60U is headed, “Power to require disposal of interest in payment system”. New subsection (2) states:
	“The power conferred … may be exercised only if the Payment Systems Regulator is satisfied that, if the power is not exercised, there is likely to be a restriction or distortion of competition in—
	(a) the market for payment systems, or
	(b) a market for services provided by payment systems”.
	How is that a remedy for anything? When it comes to divestment or disposal, is it the Government’s notion that someone will pick up the shares that have been disposed of; and, if so, who will it be? What would be the incentive for anyone to pick them up?

Lord Newby: My Lords, I am grateful for the wide welcome given to these provisions.

Noble Lords: Oh!

Lord Newby: A number of noble Lords raised the same question and have come down on different sides. Should we have a separate regulator or should it be just a division in the FCA? In the end, it was a question about how important we thought the issue was. A division in the FCA would be a division among a lot of divisions. The staff of a division in the FCA would probably be at a somewhat more junior level than that of a chief executive of an important regulator. The priority that the overall body, namely the FCA, would give to this would obviously be somewhat less than a body on its own could give, because the sole concern of the people working for it would be to make the scheme work.
	It would have been possible to do it in the FCA. In a sense, you literally pays your money and takes your choice. Our view is that this is a fundamental element of the system that needs shaking up and the best way to do it is to have a group of people whose sole
	interest—and whose career interest—is associated with making this thing work. That is why the body is being established on its own.
	The second question of the noble Lord, Lord Eatwell, was about the definition of competition. As he said, competition in terms of access and users is clearly desirable. Will it be desirable or possible to have diverse structures for all elements of the system? Almost certainly not; some parts of it are a natural monopoly. That is one reason why a regulator is needed. At the moment, you have a natural monopoly controlled by a small group of banks. What we want to do is open up that access but give more scope for looking at options, which at the moment are closed down by the structure. My personal view is that it is highly unlikely that the basic plumbing of the system will replicate the situation in the railways; it would make no sense. However, there may be elements of the payments system, including new forms of payment, which may be susceptible to competition, and we want the regulator to have that in its purview and look at it. There is no suggestion that we are seeking to break up those elements of the system that form a natural monopoly.
	The noble Lord also asked about maintenance of service. There is a difference between what the regulator will be doing on a day-to-day basis in making sure that the whole system works effectively and what happens if the whole thing is failing. That is the difference in the second provision, which we will come on to later, about resolution. The people to look after resolution when something has failed are not necessarily the best people to be doing the day-to-day management of it.

Lord Eatwell: My Lords, I beg the noble Lord’s pardon, but the question related to a possibility of interruption of service. Amendment 62 states:
	“The Treasury may by order designate a company”,
	and so on, to maintain the service. We then move on to the next section relating to fundamental market infrastructure, which states that the maintenance of service is the responsibility of the Bank of England. There is an inconsistency here. As regards the issue of the infrastructure as a payments system and the issue of all other aspects of back-office infrastructure, the Treasury is responsible for one and the Bank of England is responsible for the other. However, they are so interrelated and interdependent that it does not really make sense. You have either one or the other. I do not mind which. I would prefer the Bank of England to be responsible because it is closer to the payments system, but you do not have both.

Lord Newby: My Lords, I will have another look at that. The noble Lord has a problem which I do not have to the same extent, but he makes a perfectly reasonable point and we will look at it.
	The noble Lord, Lord Higgins, asked a couple of questions—one about cost and the other about international payments. The cost of the activities comes from the FCA budget and is therefore borne by the regulated population. It is not known at this stage
	what the level of fees or the detailed budget will be. These will be determined by the FCA. The regulator will be concerned with UK payments systems only.

Lord Higgins: I am not quite clear about who is paying this cost. Am I right in thinking that it is the people using the chequing system? My second question was: is this regulatory system compatible with a change in the underlying system from, say, cheques to the system used in the Netherlands? Thirdly, am I right in understanding that the noble Lord said that this arrangement will cover only domestic, not international, transactions? Should we not be covering both?

Lord Newby: It will cover the UK end of international transactions. The counterparty in another country is regulated by that country’s operations, not by the UK end of it. Obviously, close working between both countries is required but we are dealing with the pipes that leave the UK. Once they have left the UK, the pipes are regulated by someone else. As far as cheques are concerned, if there were to be a decision or view expressed that cheques had come to the end of their useful life, it will not fall under the purview of the regulator to effect that change. I think that that I am right in saying that the budget forms part of the FCA’s overall budget, as set out in the legislation. Therefore, the overall financial services sector pays into the FCA for a whole raft of specialist functions. This is no different from anything else that is funded by the FCA.

Lord Eatwell: Perhaps I may follow that. The overall financial services industry, or that bit of it which is regulated by the FCA, some of which has nothing to do with banking and payments systems, has to pay for this regulator. On top of that, let us remember that he who pays the piper calls the tune. All this stuff about separate careers and career paths is subsumed by the fact that the financial controller of the FCA will control the funds going into this organisation. I take the argument of the noble Lord, Lord Turnbull, about the focus on this role, but I really do not understand why you cannot have a division with a senior figure in charge of it, and therefore some clarity within the FCA.

Lord Newby: My Lords, I am extremely sorry that the noble Lord does not understand. We just have a difference of view about that. The noble Baroness, Lady Noakes, asked about the kind of action that the regulator could take and whether it could, in effect, behave unreasonably. The answer is—

Baroness Noakes: I did not question whether or not it could behave reasonably because all regulators are supposed to behave reasonably, and can be challenged if they do not. I asked the Minister to address specific points. There are amendments here about granting access and varying the terms of existing agreements. I asked where in the 40, which I am told is now 52, pages of amendments that we are asked to consider in this group are the financial principles that will guide this new regulator in imposing terms for this new
	access or in varying existing access rights. I was trying to tease out, for example, whether the regulator will have the power to impose subsidies on existing payments regulators or whether he will be required to ensure that the payment system operators can cover their costs. Therefore, I asked: where are the financial principles which the regulator has to use in exercising the powers that are granted by two of the amendments in this group?

Lord Newby: I am extremely sorry; I misunderstood the noble Baroness. I think that I shall have to write to her on that point.
	My noble friend Lord Sharkey asked whether this was the only case in which a regulator had innovation as part of his remit. I simply do not know but I think that the noble Lord, Lord Lawson, pointed out that, if it were, that might indeed be an innovation. If it is an innovation, we think that it is a good one.
	In terms of divestment and who picks up the shares, we are saying that this is something that the regulator should have the power to look at as one possibility. There is no blueprint in Treasury minds as to how he will do it or whether he will do it and, if so, who the beneficiaries will be. It is something that we want to have as an option for the regulator to look at. We want to give the regulator the greatest possible scope to come up with alternative ways of developing the system and possibly of generating new sources of funding for the innovation, which we are also keen on.
	I am sure that I have omitted a number of points. My noble friend Lord Phillips raised a question concerning subsection (3) of the proposed new clause in Amendment 60B and I have now forgotten what he asked. Perhaps he would like to ask it again. He is indicating that he would not—that is good.

Lord Martin of Springburn: I have been very interested in what has been said about the regulator. Obviously the regulator has to work at arm’s length from those he is regulating. If any hospitality is offered to the regulator, is that put in a register that can be seen by the public? In other words, will we have transparency in this matter?

Lord Newby: I will write to the noble Lord as I do not have the faintest clue, except to say that I am sure that this regulator will follow the same rules as other regulators, but I simply do not know what their rules are in respect of hospitality. I suspect that, like Ministers, there will be some de minimis figure below which they will not need to make such a declaration and beyond which they will. However, I will check that.
	Amendment 60A agreed.
	Amendments 60B to 60YYV
	 Moved by Lord Newby
	60B: After Clause 12, insert the following new Clause—
	“The Payment Systems Regulator
	(1) The FCA must establish a body corporate to exercise the functions conferred on the body by or under this Part.
	(2) The body established under subsection (1) is referred to in this Part as the Payment Systems Regulator.
	(3) The FCA must take such steps as are necessary to ensure that the Payment Systems Regulator is, at all times, capable of exercising the functions referred to in subsection (1).
	(4) In complying with the duty imposed by subsection (3) the FCA may, in particular—
	(a) provide staff to the Payment Systems Regulator, and
	(b) provide services to the Payment Systems Regulator which the FCA considers would facilitate the exercise of any of those functions.
	(5) Schedule (The Payment Systems Regulator) (which contains further provision about the Payment Systems Regulator) has effect.”
	60C: After Clause 12, insert the following new Clause—
	“Meaning of “payment system”
	(1) In this Part “payment system” means a system which is operated by one or more persons in the course of business for the purpose of enabling persons to make transfers of funds, and includes a system which is designed to facilitate the transfer of funds using another payment system.
	(2) But “payment system” does not include—
	(a) any arrangements for the physical movement of cash;
	(b) a system which does not make any provision for the transfer of funds by payers, or to recipients, in the United Kingdom;
	(c) a securities settlement system operated by a person approved under regulations under section 785 of the Companies Act 2006 (provision enabling procedures for evidencing and transferring title);
	(d) a system operated by a recognised clearing house;
	(e) any other system whose primary purpose is not that of enabling persons to transfer funds.
	(3) In this section—
	“recognised clearing house” has the meaning given by section 285(1) of FSMA 2000;
	“securities settlement system” means a computer-based system, and procedures, which enable title to units of a security to be evidenced and transferred without a written instrument, and which facilitate supplementary and incidental matters.
	(4) The Treasury may by order amend this section so as to—
	(a) add descriptions of systems or arrangements that are not to be regarded as payment systems, or
	(b) vary or remove any such description.”
	60D: After Clause 12, insert the following new Clause—
	“Participants in payment systems etc
	(1) This section applies for the purposes of this Part.
	(2) The following persons are “participants” in a payment system—
	(a) the operator of the payment system (see subsection (3));
	(b) any infrastructure provider (see subsection (4));
	(c) any payment service provider (see subsection (5)).
	(But see also subsection (8).)
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(3) “Operator”, in relation to a payment system, means any person with responsibility under the system for managing or operating it; and any reference to the operation of a payment system includes a reference to its management.
	(4) “Infrastructure provider”, in relation to a payment system, means any person who provides or controls any part of the infrastructure used for the purposes of operating the payment system.
	(5) “Payment service provider”, in relation to a payment system, means any person who provides services to persons who are not participants in the system for the purposes of enabling the transfer of funds using the payment system.
	(6) A payment service provider has “direct access” to a payment system if the payment service provider is able to provide services for the purposes of enabling the transfer of funds using the payment system as a result of arrangements made between the payment service provider and the operator of the payment system.
	(7) Any reference to participation in a payment system is to be read in accordance with this section, and in particular—
	(a) in the case of an operator of a payment system, includes a reference to developing the system, and
	(b) in the case of a payment service provider with direct access to a payment system, includes a reference to entering into an agreement with a person to enable the person to become a payment service provider in relation to the system.
	(8) The Bank of England is not to be regarded as a participant of any kind in any payment system.”
	60E: After Clause 12, insert the following new Clause—
	“Designation orders
	(1) The Treasury may by order (a “designation order”) designate a payment system as a regulated payment system for the purposes of this Part.
	(2) A designation order must specify in as much detail as is reasonably practicable the arrangements that constitute the payment system.”
	60F: After Clause 12, insert the following new Clause—
	“Designation criteria
	(1) The Treasury may make a designation order in respect of a payment system only if they are satisfied that any deficiencies in the design of the system, or any disruption of its operation, would be likely to have serious consequences for those who use, or are likely to use, the services provided by the system.
	(2) In considering whether to make a designation order in respect of a payment system, the Treasury must have regard to—
	(a) the number and value of the transactions that the system presently processes or is likely to process in the future,
	(b) the nature of the transactions that the system presently processes or is likely to process in the future,
	(c) whether those transactions or their equivalent could be handled by other payment systems, and
	(d) the relationship between the system and other payment systems.”
	60G: After Clause 12, insert the following new Clause—
	“Procedure
	(1) Before making a designation order in respect of a payment system the Treasury must—
	(a) consult the Payment Systems Regulator and, if the system is a recognised inter-bank payment system, the Bank of England,
	(b) notify the operator of the system, and
	(c) consider any representations made.
	(2) In considering whether to make a designation order in respect of a payment system, the Treasury may rely on information provided by—
	(a) the Bank of England,
	(b) the FCA,
	(c) the PRA, or
	(d) the Payment Systems Regulator.”
	60H: After Clause 12, insert the following new Clause—
	“Amendment of designation order
	(1) The Treasury may amend a designation order.
	(2) Before amending a designation order made in respect of a payment system, the Treasury must—
	(a) consult the Payment Systems Regulator and, if the payment system is a recognised inter-bank payment system, the Bank of England,
	(b) notify the operator of the payment system, and
	(c) consider any representations made.
	(3) The Treasury must consider any request by the operator of a regulated payment system for the amendment of its designation order.”
	60J: After Clause 12, insert the following new Clause—
	“Revocation of designation orders
	(1) The Treasury may revoke a designation order.
	(2) The Treasury must revoke a designation order if they are not satisfied that the criteria in section (Designation criteria) are met in respect of the payment system to which the order relates.
	(3) Before revoking a designation order made in respect of a payment system, the Treasury must—
	(a) consult the Payment Systems Regulator and, if the payment system is a recognised inter-bank payment system, the Bank of England,
	(b) notify the operator of the payment system, and
	(c) consider any representations made.
	(4) The Treasury must consider any request by the operator of a regulated payment system for the revocation of its designation order.”
	60K: After Clause 12, insert the following new Clause—
	“Regulator’s general duties in relation to payment systems
	(1) In discharging its general functions relating to payment systems the Payment Systems Regulator must, so far as is reasonably possible, act in a way which advances one or more of its payment systems objectives.
	(2) The payment systems objectives of the Payment Systems Regulator are—
	(a) the competition objective (see section (The competition objective)),
	(b) the innovation objective (see section (The innovation objective)), and
	(c) the service-user objective (see section (The service-user objective)).
	(3) In discharging its general functions relating to payment systems the Payment Systems Regulator must have regard to—
	(a) the importance of maintaining the stability of, and confidence in, the UK financial system,
	(b) the importance of payment systems in relation to the performance of functions by the Bank of England in its capacity as a monetary authority, and
	(c) the regulatory principles in section (Regulatory principles).
	(4) The general functions of the Payment Systems Regulator relating to payment systems are—
	(a) its function of giving general directions under section (Directions) (considered as a whole),
	(b) its functions in relation to the giving of general guidance under section (Guidance) (considered as a whole), and
	(c) its function of determining the general policy and principles by reference to which it performs particular functions.”
	60L: After Clause 12, insert the following new Clause—
	“The competition objective
	(1) The competition objective is to promote effective competition in—
	(a) the market for payment systems, and
	(b) the markets for services provided by payment systems,
	in the interests of those who use, or are likely to use, services provided by payment systems.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing
	the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(2) The reference in subsection (1) to promoting effective competition includes, in particular, promoting effective competition—
	(a) between different operators of payment systems,
	(b) between different payment service providers, and
	(c) between different infrastructure providers.
	(3) The matters to which the Payment Systems Regulator may have regard in considering the effectiveness of competition in a market mentioned in subsection (1) include—
	(a) the needs of different persons who use, or may use, services provided by payment systems,
	(b) the ease with which persons who may wish to use those services can do so,
	(c) the ease with which persons who obtain those services can change the person from whom they obtain them,
	(d) the needs of different payment service providers or persons who wish to become payment service providers,
	(e) the ease with which payment service providers, or persons who wish to become payment service providers, can provide services using payment systems,
	(f) the ease with which payment service providers can change the payment system they use to provide their services,
	(g) the needs of different infrastructure providers or persons who wish to become infrastructure providers,
	(h) the ease with which infrastructure providers, or persons who wish to become infrastructure providers, can provide infrastructure for the purposes of operating payment systems,
	(i) the needs of different operators of payment systems,
	(j) the ease with which operators of payment systems can change the infrastructure used to operate the payment systems,
	(k) the level and structure of fees, charges or other costs associated with participation in payment systems,
	(l) the ease with which new entrants can enter the market,
	(m) how far competition is contributing to the development of efficient and effective infrastructure for the purposes of operating payment systems,
	(n) how far competition is encouraging innovation.”
	60M: After Clause 12, insert the following new Clause—
	“The innovation objective
	(1) The innovation objective is to promote the development of, and innovation in, payment systems in the interests of those who use, or are likely to use, services provided by payment systems, with a view to improving the quality, efficiency and economy of payment systems.
	(2) The reference in subsection (1) to promoting the development of, and innovation in, payment systems includes, in particular, a reference to promoting the development of, and innovation in, infrastructure to be used for the purposes of operating payment systems.”
	60N: After Clause 12, insert the following new Clause—
	“The service-user objective
	The service-user objective is to ensure that payment systems are operated and developed in a way that takes account of, and promotes, the interests of those who use, or are likely to use, services provided by payment systems.”
	60P: After Clause 12, insert the following new Clause—
	“Regulatory principles
	(none) The regulatory principles referred to in section (Regulator’s general duties in relation to payment systems)(3)(c) are as follows—
	(a) the need to use the resources of the Payment Systems Regulator in the most efficient and economic way;
	(b) the principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction;
	(c) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term;
	(d) the general principle that those who use services provided by payment systems should take responsibility for their decisions;
	(e) the responsibilities of the senior management of persons subject to requirements imposed by or under this Part, including those affecting persons who use services provided by payment systems, in relation to compliance with those requirements;
	(f) the desirability where appropriate of the Payment Systems Regulator exercising its functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons subject to requirements imposed by or under this Part;
	(g) the desirability in appropriate cases of the Payment Systems Regulator publishing information relating to persons on whom requirements are imposed by or under this Part, or requiring such persons to publish information, as a means of contributing to the advancement by the Payment Systems Regulator of its payment systems objectives;
	(h) the principle that the Payment Systems Regulator should exercise its functions as transparently as possible.”
	60Q: After Clause 12, insert the following new Clause—
	“Directions
	(1) The Payment Systems Regulator may give directions in writing to participants in regulated payment systems.
	(2) A direction given to a participant in a regulated payment system may—
	(a) require or prohibit the taking of specified action in relation to the system;
	(b) set standards to be met in relation to the system.
	(3) A direction under this section may apply—
	(a) generally,
	(b) in relation to all operators, all infrastructure providers or all payment service providers, or
	(c) in relation to specified persons or persons of a specified description.
	(4) The Payment Systems Regulator must publish any direction given under this section that applies as mentioned in subsection (3)(a) or (b).
	(5) A direction under this section that applies as mentioned in subsection (3)(a) is referred to in this Part as a “general direction”.”
	60R: After Clause 12, insert the following new Clause—
	“System rules
	(1) The Payment Systems Regulator may require the operator of a regulated payment system—
	(a) to establish rules for the operation of the system;
	(b) to change the rules in a specified way or so as to achieve a specified purpose;
	(c) to notify the Payment Systems Regulator of any proposed change to the rules;
	(d) not to change the rules without the approval of the Payment Systems Regulator.
	(2) A requirement under subsection (1)(c) or (d) may be general or specific.”
	60S: After Clause 12, insert the following new Clause—
	“Power to require access to payment systems
	(1) This section applies where a person (“the applicant”) applies for an order under this section.
	(2) The Payment Systems Regulator may by order require the operator of a regulated payment system to enable the applicant to become a payment service provider in relation to the system.
	(3) The Payment Systems Regulator may by order require any payment service provider with direct access to a regulated payment system to enter into an agreement with the applicant to enable the applicant to become a payment service provider in relation to the system.
	(4) An order under this section may provide for the applicant to become a payment service provider in relation to a payment system—
	(a) for a period specified in the order;
	(b) on terms and conditions specified in the order.”
	60T: After Clause 12, insert the following new Clause—
	“Variation of agreements relating to payment systems
	(1) This section applies to the following agreements—
	(a) any agreement made between the operator of a regulated payment system and a payment service provider;
	(b) any agreement made between a payment service provider with direct access to a regulated payment system and another person for the purpose of enabling that other person to become a payment service provider in relation to the system;
	(c) any agreement concerning fees or charges payable in connection with—
	(i) participation in a regulated payment system, or
	(ii) the use of services provided by a regulated payment system.
	(2) The Payment Systems Regulator may, on the application of a party to an agreement to which this section applies, vary the agreement by—
	(a) varying any of the fees or charges payable under the agreement, or
	(b) in the case of an agreement within subsection (1)(a) or (b), varying any other terms and conditions relating to the payment service provider’s participation in the payment system.
	(3) In the case of an agreement within subsection (1)(b), the reference in subsection (2)(b) to the payment service provider is to the payment service provider which does not have direct access to the payment system.
	(4) The power under this section to vary any fee or charge includes power to specify a maximum fee or charge.
	(5) If the Payment Systems Regulator varies an agreement under this section, the agreement has effect subject to the variation.”
	60U: After Clause 12, insert the following new Clause—
	“Power to require disposal of interest in payment system
	(1) The Payment Systems Regulator may require a person who has an interest in the operator of a regulated payment system to dispose of all or part of that interest.
	(2) The power conferred by subsection (1) may be exercised only if the Payment Systems Regulator is satisfied that, if the power is not exercised, there is likely to be a restriction or distortion of competition in—
	(a) the market for payment systems, or
	(b) a market for services provided by payment systems.
	(3) The Payment Systems Regulator may not exercise the power conferred by subsection (1) without the consent of the Treasury.
	(4) If the Payment Systems Regulator decides to exercise the power conferred by subsection (1) in relation to a person who has an interest in the operator of a regulated payment system—
	(a) the Payment Systems Regulator must notify the relevant competition authorities (see subsection (5)), and
	(b) the relevant competition authorities may not take any action in relation to the person that would require the person to dispose of all or part of that interest.
	(5) The relevant competition authorities are—
	(a) the Secretary of State,
	(b) the Competition and Markets Authority, and
	(c) the FCA.”
	60V: After Clause 12, insert the following new Clause—
	“The Regulator’s functions under Part 4 of the Enterprise Act 2002
	(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the Payment Systems Regulator and the Competition and Markets Authority (“the CMA”).
	(2) Subsection (1) applies to the functions of the CMA under Part 4 of the Enterprise Act 2002 (market investigations), so far as those functions—
	(a) are exercisable by the CMA Board (within the meaning of Schedule 4 to the Enterprise and Regulatory Reform Act 2013), and
	(b) relate to participation in payment systems.
	(3) But subsection (1) does not apply to functions under the following sections of the Enterprise Act 2002—
	(none) section 166 (duty to maintain register of undertakings and orders);
	(none) section 171 (duty to publish guidance).
	(4) So far as is necessary for the purposes of, or in connection with, subsections (1) and (2)—
	(a) references in Part 4 of the Enterprise Act 2002 to the CMA (including references in provisions of that Act applied by that Part) are to be read as including references to the Payment Systems Regulator,
	(b) references in that Part to section 5 of that Act are to be read as including references to section (Information relating to Regulator’s competition functions) of this Act, and
	(c) references in that Part to consumers are to be read as including references to any person who uses, or is likely to use, services provided by payment systems in the course of a business carried on by the person.
	(5) But subsection (4) does not apply—
	(a) in relation to section 166 or 171 of that Act, or
	(b) where the context otherwise requires.
	(6) Section 130A of the Enterprise Act 2002 is to have effect in relation to the Payment Systems Regulator by virtue of subsections (1) and (2) as if—
	(a) in subsection (2)(a) of that section, the reference to the acquisition or supply of goods or services of one or more than one description in the United Kingdom were a reference to the participation in payment systems used to provide services in the United Kingdom, and
	(b) in subsection (2)(b) of that section, the reference to the extent to which steps can and should be taken were a reference to the extent to which steps that might include steps under Part 4 of that Act can and should be taken.”
	60W: After Clause 12, insert the following new Clause—
	“Restrictions on exercise of functions under Part 4 of the Enterprise Act 2002
	(1) Before the CMA or the Payment Systems Regulator first exercises any of the concurrent functions in relation to any matter, it must consult the other.
	(2) Neither the CMA nor the Payment Systems Regulator may exercise any of the concurrent functions in relation to any matter if any of those functions have been exercised in relation to that matter by the other.
	(3) In subsections (1) and (2) “the concurrent functions” has the same meaning as in section (The Regulator’s functions under Part 4 of the Enterprise Act 2002).
	(4) Before the FCA or the Payment Systems Regulator first exercises any of the concurrent functions in relation to any matter, it must consult the other.
	(5) Neither the FCA nor the Payment Systems Regulator may exercise any of the concurrent functions in relation to any matter if any of those functions have been exercised in relation to that matter by the other.
	(6) In subsections (4) and (5) “the concurrent functions”—
	(a) in relation to the Payment Systems Regulator, has the same meaning as in section (The Regulator’s functions under Part 4 of the Enterprise Act 2002), and
	(b) in relation to the FCA, means the functions which by virtue of section 234J of FSMA 2000 are concurrent functions of the FCA and the CMA.
	(7) In this section “the CMA” means the Competition and Markets Authority.”
	60X: After Clause 12, insert the following new Clause—
	“The Regulator’s functions under the Competition Act 1998
	(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the Payment Systems Regulator and the Competition and Markets Authority (“the CMA”).
	(2) Subsection (1) applies to the functions of the CMA under the provisions of Part 1 of the Competition Act 1998, so far as relating to any of the following that relate to participation in payment systems—
	(a) agreements, decisions or concerted practices of the kind mentioned in section 2(1) of that Act,
	(b) conduct of the kind mentioned in section 18(1) of that Act,
	(c) agreements, decisions or concerted practices of the kind mentioned in Article 101(1) of the Treaty on the Functioning of the European Union, and
	(d) conduct which amounts to abuse of the kind mentioned in Article 102 of the Treaty on the Functioning of the European Union.
	(3) But subsection (1) does not apply to functions under the following sections of that Act—
	(none) section 31D(1) to (6) (duty to publish guidance);
	(none) section 38(1) to (6) (duty to publish guidance about penalties);
	(none) section 40B(1) to (4) (duty to publish statement of policy on penalties);
	(none) section 51 (rules).
	(4) So far as necessary for the purposes of, or in connection with, the provisions of subsections (1) and (2), references to the CMA in Part 1 of the Competition Act 1998 are to be read as including references to the Payment Systems Regulator.
	(5) But subsection (4) does not apply—
	(a) in relation to sections 31D(1) to (6), 38(1) to (6), 40B(1) to (4), 51, 52(6) and (8) and 54 of that Act, or
	(b) where the context otherwise requires.”
	60Y: After Clause 12, insert the following new Clause—
	“Duty to consider exercise of powers under Competition Act 1998
	(1) Before exercising any powers within subsection (2), the Payment Systems Regulator must consider whether it would be more appropriate to proceed under the Competition Act 1998.
	(2) The powers referred to in subsection (1) are—
	(a) its power to give a direction under section (Directions) (apart from the power to give a general direction);
	(b) its power to impose a requirement under section (System rules) (apart from the power to impose a requirement on all operators of regulated payment systems);
	(c) its powers under sections (Power to require access to payment systems), (Variation of agreements relating to payment systems) and (Power to require disposal of interest in payment system).
	(3) The Payment Systems Regulator must not exercise the power if it considers that it would be more appropriate to proceed under the Competition Act 1998.”
	60YA: After Clause 12, insert the following new Clause—
	“Provision of information and assistance to a CMA group
	(1) For the purpose of assisting a CMA group in carrying out a relevant investigation, the Payment Systems Regulator must give the CMA group—
	(a) any relevant information which it has in its possession, and
	(b) any other assistance which the CMA group may reasonably require in relation to any matters falling within the scope of the investigation.
	(2) A “relevant investigation” is an investigation carried out on a reference made by the Payment Systems Regulator under section 131 of the Enterprise Act 2002 by virtue of section (The Regulator’s functions under Part 4 of the Enterprise Act 2002).
	(3) “Relevant information”, in relation to a relevant investigation, is information—
	(a) which relates to matters falling within the scope of the investigation, and
	(b) which—
	(i) is requested by the CMA group for the purpose of the investigation, or
	(ii) in the opinion of the Payment Systems Regulator, it would be appropriate to give to the CMA group for that purpose.
	(4) A CMA group, in carrying out a relevant investigation, must take into account any information given to it under this section.
	(5) In this section “CMA group” has the same meaning as in Schedule 4 to the Enterprise and Regulatory Reform Act 2013.”
	60YB: After Clause 12, insert the following new Clause—
	“Information relating to Regulator’s competition functions
	(1) For the purpose of the functions conferred on it by sections (Power to require disposal of interest in payment system) to (Provision of information and assistance to a CMA group) the Payment Systems Regulator is to have the function of keeping under review—
	(a) the market for payment systems, and
	(b) the markets for services provided by payment systems.
	(2) The function conferred by subsection (1) is to be carried out with a view to (among other things) ensuring that the Payment Systems Regulator has sufficient information to take informed decisions and to carry out its other functions effectively.”
	60YC: After Clause 12, insert the following new Clause—
	“Exclusion of general duties
	(1) Section (Regulator’s general duties in relation to payment systems) (the Payment Systems Regulator’s general duties) does not apply in relation to anything done by the Payment Systems Regulator in the carrying out of its functions by virtue of sections (The Regulator’s functions under Part 4 of the Enterprise Act 2002) to (Provision of information and assistance to a CMA group).
	(2) But in the carrying out of any functions by virtue of sections (The Regulator’s functions under Part 4 of the Enterprise Act 2002) to (Provision of information and assistance to a CMA group), the Payment Systems Regulator may have regard to any of the matters in respect of which a duty is imposed by section (Regulator’s general duties in relation to payment systems) if it is a matter to which the Competition and Markets Authority is entitled to have regard in the carrying out of those functions.”
	60YD: After Clause 12, insert the following new Clause—
	“Supplementary provision
	(1) If any question arises as to whether, by virtue of sections (The Regulator’s functions under Part 4 of the Enterprise Act 2002) and (The Regulator’s functions under the Competition Act 1998), any functions fall to be, or are capable of being, carried out by the Payment Systems Regulator in relation to any particular case, that question is to be referred to, and determined by, the Treasury.
	(2) No objection is to be taken to anything done under the Competition Act 1998 or Part 4 of the Enterprise Act 2002 by or in relation to the Payment Systems Regulator on the ground that it should have been done by or in relation to the Competition and Markets Authority.”
	60YE: After Clause 12, insert the following new Clause—
	“Amendments relating to Regulator’s competition powers
	(1) In section 9E of the Company Directors Disqualification Act 1986 (interpretation of sections 9A to 9D), in subsection (2), after paragraph (f) insert—
	“(g) the Payment Systems Regulator established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013.”
	(2) In section 54 of the Competition Act 1998 (regulators), in subsection (1), omit the “and” at the end of paragraph (g) and after paragraph (h) insert—
	“(i) the Payment Systems Regulator established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013.”
	(3) In section 136 of the Enterprise Act 2002 (investigations and reports on market investigation references)—
	(a) in subsection (7), at the end insert—
	“(j) in relation to the Payment Systems Regulator, section (The Regulator’s functions under Part 4 of the Enterprise Act 2002) of the Financial Services (Banking Reform) Act 2013.”;
	(b) in subsection (8), for “or Monitor” substitute “, Monitor or the Payment Systems Regulator.”;
	(c) at the end insert—
	“(10) In this section “the Payment Systems Regulator” means the body established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013.”
	(4) In section 52(4) of the Enterprise and Regulatory Reform Act 2013 (power to remove concurrent competition functions of sectoral regulators), after paragraph (f) insert—
	“(g) the Payment Systems Regulator established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013.”
	(5) In Schedule 4 to the Enterprise and Regulatory Reform Act 2013 (the Competition and Markets Authority), in paragraph 16 (concurrency report), at the end of sub-paragraph (7) insert—
	“(h) the Payment Systems Regulator established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013.””
	60YF: After Clause 12, insert the following new Clause—
	“Complaints by representative bodies
	(1) A designated representative body may make a complaint to the Payment Systems Regulator that a feature, or combination of features, of a market in the United Kingdom for services provided by payment systems is, or appears to be, significantly damaging the interests of those who use, or are likely to use, those services (“service-users”).
	(2) “Designated representative body” means a body designated by the Treasury by order.
	(3) The Treasury—
	(a) may designate a body only if it appears to them to represent the interests of service-users of any description, and
	(b) must publish in such manner as they think fit (and may from time to time vary) criteria to be applied by them in determining whether to make or revoke a designation.
	(4) The reference in subsection (1) to a feature of a market in the United Kingdom for services provided by payment systems is a reference to—
	(a) the structure of the market concerned or any aspect of that structure,
	(b) any conduct (whether or not in the market concerned) of one or more than one person who supplies or acquires services in the market concerned, or
	(c) any conduct relating to the market concerned of customers of any person who supplies or acquires services,
	and “conduct” includes any failure to act (whether or not intentional) and any other unintentional conduct.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(5) In this section “market in the United Kingdom” includes a market which operates only in a part of the United Kingdom.
	(6) In section 234C of FSMA 2000 (complaints by consumer bodies), after subsection (1) insert—
	“(1A) But a complaint may not be made to the FCA under this section if it is a complaint which could be made to the Payment Systems Regulator by a designated representative body under section (Complaints by representative bodies) of the Financial Services (Banking Reform) Act 2013 (complaints by representative bodies).
	“Designated representative body” and “the Payment Systems Regulator” have the same meaning in this subsection as they have in that section.””
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	60YG: After Clause 12, insert the following new Clause—
	“Response by Regulator
	(1) The Payment Systems Regulator must within 90 days after the day on which it receives a complaint under section (Complaints by representative bodies) publish a response stating how it proposes to deal with the complaint, and in particular—
	(a) whether it has decided to take any action, or to take no action, and
	(b) if it has decided to take action, what action it proposes to take.
	(2) The response must—
	(a) include a copy of the complaint, and
	(b) state the Payment Systems Regulator’s reasons for its proposals.
	(3) The Treasury may by order amend subsection (1) by substituting any period for the period for the time being specified there.”
	60YH: After Clause 12, insert the following new Clause—
	“Complaints: guidance
	(1) The guidance given by the Payment Systems Regulator under section (Guidance)—
	(a) must include guidance about the presentation of a reasoned case for a complaint under section (Complaints by representative bodies), and
	(b) may include guidance about any other matters that appear to the Payment Systems Regulator to be appropriate for the purposes of that section.
	(2) Guidance given in accordance with subsection (1) is to be treated as general guidance for the purposes of this Part.”
	60YJ: After Clause 12, insert the following new Clause—
	“Meaning of “compliance failure”
	In this Part “compliance failure” means a failure by a participant in a regulated payment system to—
	(a) comply with a direction given under section (Directions), or
	(b) comply with a requirement imposed under section (System rules) or (Power to require access to payment systems).”
	60YK: After Clause 12, insert the following new Clause—
	“Publication of compliance failures etc
	(1) The Payment Systems Regulator may publish details of a compliance failure by a participant in a regulated payment system.
	(2) The Payment Systems Regulator may publish details of a sanction imposed under section (Penalties).”
	60YL: After Clause 12, insert the following new Clause—
	“Penalties
	(1) The Payment Systems Regulator may require a participant in a regulated payment system to pay a penalty in respect of a compliance failure.
	(2) A penalty—
	(a) must be paid to the Payment Systems Regulator, and
	(b) may be enforced by the Payment Systems Regulator as a debt.
	(3) The Payment Systems Regulator must prepare a statement of the principles which it will apply in determining—
	(a) whether to impose a penalty, and
	(b) the amount of a penalty.
	(4) The Payment Systems Regulator must—
	(a) publish the statement on its website,
	(b) send a copy to the Treasury,
	(c) review the statement from time to time and revise it if necessary (and paragraphs (a) and (b) apply to a revision), and
	(d) in applying the statement to a compliance failure, apply the version in force when the compliance failure occurred.”
	60YM: After Clause 12, insert the following new Clause—
	“Warning notices
	(1) Before imposing a sanction on any person the Payment Systems Regulator must—
	(a) give the person a notice in writing (a “warning notice”),
	(b) give the person at least 21 days to make representations,
	(c) consider any representations made, and
	(d) as soon as is reasonably practicable, give the person a notice in writing stating whether or not it intends to impose the sanction.
	(2) In subsection (1) any reference to imposing a sanction is a reference to—
	(a) publishing details under section (Publication of compliance failures etc)(1), or
	(b) requiring the payment of a penalty under section (Penalties).”
	60YN: After Clause 12, insert the following new Clause—
	“Injunctions
	(1) If, on the application of the Payment Systems Regulator, the court is satisfied—
	(a) that there is a reasonable likelihood that there will be a compliance failure, or
	(b) that there has been a compliance failure and there is a reasonable likelihood that it will continue or be repeated,
	the court may make an order restraining the conduct constituting the failure.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(2) If, on the application of the Payment Systems Regulator, the court is satisfied—
	(a) that there has been a compliance failure by a participant in a regulated payment system, and
	(b) that there are steps which could be taken for remedying the failure,
	the court may make an order requiring the participant, and anyone else who appears to have been knowingly concerned in the failure, to take such steps as the court may direct to remedy it.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(3) If, on the application of the Payment Systems Regulator, the court is satisfied—
	(a) that there may have been a compliance failure by a participant in a regulated payment system, or
	(b) that a person may have been knowingly concerned in a compliance failure,
	the court may make an order restraining the participant or the person (as the case may be) from dealing with any assets which it is satisfied the participant or person is reasonably likely to deal with.
	(a) The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b) Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c) Ignore sub-para. (3)(b).
	(a) Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b) In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a) Ignore sub-paras. (1) and (3).
	(b) The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a) Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b) Ignore para. 91(2).
	(a) in accordance with directions of the Bank of England, and
	(b) if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a) In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b) Ignore subsections (2A)(a) and (3) to (3C).
	(4) The jurisdiction conferred by this section is exercisable—
	(a) in England and Wales and Northern Ireland, by the High Court, and
	(b) in Scotland, by the Court of Session.
	(5) In this section—
	(a) references to an order restraining anything are, in Scotland, to be read as references to an interdict prohibiting that thing,
	(b) references to remedying a failure include mitigating its effect, and
	(c) references to dealing with assets include disposing of them.”
	60YP: After Clause 12, insert the following new Clause—
	“Appeals: general
	(1) A person who is affected by any of the following decisions of the Payment Systems Regulator may appeal against the decision—
	(a) a decision to give a direction under section (Directions) (other than a general direction),
	(b) a decision to impose a requirement under section (System rules) (other than a requirement imposed on all operators of regulated payment systems),
	(c) a decision to exercise its power under section (Power to require access to payment systems), (Variation of agreements relating to payment systems) or (Power to require disposal of interest in payment system),
	(d) a decision to impose a sanction.
	(2) In subsection (1) the reference to imposing a sanction is a reference to—
	(a) publishing details under section (Publication of compliance failures etc)(1), or
	(b) requiring the payment of a penalty under section (Penalties).
	(3) If the decision is a CAT-appealable decision, the appeal must be made to the Competition Appeal Tribunal in accordance with section (Appeals to Competition Appeal Tribunal).
	(4) A “CAT-appealable decision” means—
	(a) a decision to give a direction under section (Directions),
	(b) a decision to impose a requirement under section (System rules), or
	(c) a decision to publish details under section (Publication of compliance failures etc)(1).
	(5) If the decision is a decision to impose a penalty on the person under section (Penalties), the appeal must be made to the Competition Appeal Tribunal in accordance with section (Appeals in relation to penalties).
	(6) If the decision is a CMA-appealable decision, the appeal must be made to the Competition and Markets Authority (“the CMA”) in accordance with section (Appeals to Competition and Markets Authority).
	(7) A “CMA-appealable decision” means—
	(a) a decision to impose a requirement under section (Power to require access to payment systems),
	(b) a decision to vary an agreement under section (Variation of agreements relating to payment systems), or
	(c) a decision to impose a requirement under section (Power to require disposal of interest in payment system).
	(8) The permission of the CMA is required for an appeal to be made in accordance with section (Appeals to Competition and Markets Authority).
	(9) The CMA may refuse permission for an appeal only if—
	(a) the appeal is made for reasons that are trivial or vexatious, or
	(b) the appeal has no reasonable prospect of success.”
	60YQ: After Clause 12, insert the following new Clause—
	“Appeals to Competition Appeal Tribunal
	(1) This section applies where a person is appealing to the Competition Appeal Tribunal (“the Tribunal”) against a CAT-appealable decision.
	(2) The means of making an appeal is by sending the Tribunal a notice of appeal in accordance with Tribunal rules.
	(3) The notice of appeal must be sent within the period specified, in relation to the decision appealed against, in those rules.
	(4) In determining an appeal made in accordance with this section, the Tribunal must apply the same principles as would be applied by a court on an application for judicial review.
	(5) The Tribunal must either—
	(a) dismiss the appeal, or
	(b) quash the whole or part of the decision to which the appeal relates.
	(6) If the Tribunal quashes the whole or part of a decision, it may refer the matter back to the Payment Systems Regulator with a direction to reconsider and make a new decision in accordance with its ruling.
	(7) The Tribunal may not direct the Payment Systems Regulator to take any action which it would not otherwise have the power to take in relation to the decision.
	(8) The effect of a decision to publish details under section (Publication of compliance failures etc)(1) is suspended by the making of an appeal against the decision (and the details may not be published until the appeal has been determined).
	(9) The effect of any other CAT-appealable decision is not suspended by the making of an appeal against the decision.
	(10) In this section and section (Appeals in relation to penalties) “Tribunal rules” means rules under section 15 of the Enterprise Act 2002.”
	60YR: After Clause 12, insert the following new Clause—
	“Appeals in relation to penalties
	(1) This section applies where a person is appealing to the Competition Appeal Tribunal (“the Tribunal”) against a decision to impose a penalty under section (Penalties).
	(2) The person may appeal against—
	(a) the imposition of the penalty,
	(b) the amount of the penalty, or
	(c) any date by which the penalty, or any part of it, is required to be paid.
	(3) The means of making an appeal is by sending the Tribunal a notice of appeal in accordance with Tribunal rules.
	(4) The notice of appeal must be sent within the period specified, in relation to the decision appealed against, in those rules.
	(5) The Tribunal may do any of the following—
	(a) uphold the penalty;
	(b) set aside the penalty;
	(c) substitute for the penalty a penalty of an amount decided by the Tribunal;
	(d) vary any date by which the penalty, or any part of it, is required to be paid.
	(6) If an appeal is made in accordance with this section, the penalty is not required to be paid until the appeal has been determined.
	(7) Subsections (2), (5) and (6) do not restrict the power to make Tribunal rules; and those subsections are subject to Tribunal rules.
	(8) Except as provided by this section, the validity of the penalty may not be questioned by any legal proceedings whatever.
	(9) In the case of an appeal made in accordance with this section, a decision of the Tribunal has the same effect as, and may be enforced in the same manner as, a decision of the Payment Systems Regulator.”
	60YS: After Clause 12, insert the following new Clause—
	“Appeals to Competition and Markets Authority
	(1) This section applies where a person is appealing to the Competition and Markets Authority (“the CMA”) against a CMA-appealable decision.
	(2) In determining the appeal the CMA must have regard, to the same extent as is required of the Payment Systems Regulator, to the matters to which the Payment Systems Regulator must have regard in discharging its functions under this Part.
	(3) In determining the appeal the CMA—
	(a) may have regard to any matter to which the Payment Systems Regulator was not able to have regard in relation to the decision, but
	(b) must not, in the exercise of that power, have regard to any matter to which the Payment Systems Regulator would not have been entitled to have regard in reaching its decision had it had the opportunity of doing so.
	(4) The CMA must either—
	(a) dismiss the appeal, or
	(b) quash the whole or part of the decision to which the appeal relates.
	(5) The CMA may act as mentioned in subsection (4)(b) only to the extent that it is satisfied that the decision was wrong on one or more of the following grounds—
	(a) that the Payment Systems Regulator failed properly to have regard to any matter mentioned in subsection (2);
	(b) that the Payment Systems Regulator failed to give the appropriate weight to any matter mentioned in subsection (2);
	(c) that the decision was based, wholly or partly, on an error of fact;
	(d) that the decision was wrong in law.
	(6) If the CMA quashes the whole or part of a decision, it may either—
	(a) refer the matter back to the Payment Systems Regulator with a direction to reconsider and make a new decision in accordance with its ruling, or
	(b) substitute its own decision for that of the Payment Systems Regulator.
	(7) The CMA may not direct the Payment Systems Regulator to take any action which it would not otherwise have the power to take in relation to the decision.
	(8) Schedule (Procedure for appeals to the CMA) contains further provision about the making of appeals in accordance with this section.”
	60YT: After Clause 12, insert the following new Clause—
	“Enforcement of requirement to dispose of interest in payment system
	(1) A requirement imposed under section (Power to require disposal of interest in payment system) is enforceable by civil proceedings brought by the Payment Systems Regulator for an injunction or for interdict or for any other appropriate relief or remedy.
	(2) Civil proceedings may not be brought to enforce a requirement imposed under that section unless—
	(a) the time for bringing an appeal against the decision to impose the requirement has expired and no appeal has been brought within that time, or
	(b) the person on whom the requirement was imposed has within that time brought such an appeal and the appeal has been dismissed or withdrawn.”
	60YU: After Clause 12, insert the following new Clause—
	“Power to obtain information or documents
	(1) The Payment Systems Regulator may by notice in writing require a person to provide information or documents—
	(a) which the Payment Systems Regulator thinks will help the Treasury in determining whether to make a designation order, or
	(b) which the Payment Systems Regulator otherwise requires in connection with its functions under this Part.
	(2) In particular, a notice under subsection (1) may require a participant in a regulated payment system to notify the Payment Systems Regulator if events of a specified kind occur.
	(3) A notice under subsection (1) may require information or documents to be provided—
	(a) in a specified form or manner;
	(b) at a specified time;
	(c) in respect of a specified period.
	(4) The Payment Systems Regulator may disclose information obtained by virtue of this section to—
	(a) the Treasury;
	(b) the Bank of England;
	(c) the FCA;
	(d) the PRA;
	(e) the Office of Communications;
	(f) an authority in a country or territory outside the United Kingdom that exercises functions similar to those of the Treasury, the Bank of England, the FCA, the PRA or the Payment Systems Regulator in relation to payment systems;
	(g) the European Commission;
	(h) the European Central Bank;
	(i) the Bank for International Settlements.
	(5) Subsection (4)—
	(a) overrides any requirement to keep information in confidence, and
	(b) is without prejudice to any other power to disclose information.
	(6) The Treasury may by regulations permit the disclosure of information obtained by virtue of this section to a specified person.
	(7) The Payment Systems Regulator may publish information obtained by virtue of this section.
	(8) The Treasury may make regulations about the manner and extent of publication under subsection (7).
	(9) In subsection (4)(f) the reference to payment systems is to be read as if subsection (2)(b) of section (Meaning of “payment system”) were omitted.”
	60YV: After Clause 12, insert the following new Clause—
	“Reports by skilled persons
	(1) The Payment Systems Regulator may—
	(a) require a person who is a participant in a regulated payment system (“the relevant participant”) to provide the Payment Systems Regulator with a report on any matter relating to the system (“the matter concerned”), or
	(b) appoint a person to provide the Payment Systems Regulator with a report on the matter concerned.
	(2) The power conferred by subsection (1)(a) is exercisable by giving the relevant participant a notice in writing.
	(3) When acting under subsection (1)(a), the Payment Systems Regulator may require the report to be in a form specified in the notice.
	(4) The Payment Systems Regulator must give written notice of an appointment under subsection (1)(b) to the relevant participant.
	(5) A person appointed to make a report under this section—
	(a) must be a person appearing to the Payment Systems Regulator to have the skills necessary to make a report on the matter concerned, and
	(b) where the appointment is to be made by the relevant participant, must be a person nominated or approved by the Payment Systems Regulator.
	(6) It is the duty of—
	(a) the relevant participant, and
	(b) any person who is providing (or who has at any time provided) services to the relevant participant in relation to the matter concerned,
	to give the person appointed to prepare a report all such assistance as the appointed person may reasonably require.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(7) The obligation imposed by subsection (6) is enforceable, on the application of the Payment Systems Regulator, by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
	(8) The Payment Systems Regulator may direct the relevant participant to pay any expenses incurred by the Payment Systems Regulator in relation to an appointment under subsection (1)(b).”
	60YW: After Clause 12, insert the following new Clause—
	“Appointment of persons to conduct investigations
	(1) If it considers that it is desirable to do so in order to advance any of its payment systems objectives, the Payment Systems Regulator may appoint one or more competent persons to conduct an investigation on its behalf into the nature, conduct or state of the business of any participant in a regulated payment system.
	(2) If it appears to the Payment Systems Regulator that there are circumstances suggesting that there may have been a compliance failure, the Payment Systems Regulator may appoint one or more competent persons to conduct an investigation on its behalf.”
	60YX: After Clause 12, insert the following new Clause—
	“Investigations: general
	(1) This section applies if the Payment Systems Regulator appoints one or more competent persons (“investigators”) under section (Appointment of persons to conduct investigations) to conduct an investigation on its behalf.
	(2) The Payment Systems Regulator must give written notice of the appointment of an investigator to the person who is the subject of the investigation.
	(3) Subsections (2) and (9) do not apply if—
	(a) the Payment Systems Regulator believes that the notice required by subsection (2) or (9) would be likely to result in the investigation being frustrated, or
	(b) the investigator is appointed under subsection (2) of section (Appointment of persons to conduct investigations).
	(4) A notice under subsection (2) must—
	(a) specify the provision under which the investigator was appointed, and
	(b) state the reason for the appointment.
	(5) Nothing prevents the Payment Systems Regulator from appointing as an investigator—
	(a) a member of its staff, or
	(b) a member of staff of the FCA.
	(6) An investigator who conducts an investigation must make a report of the investigation to the Payment Systems Regulator.
	(7) The Payment Systems Regulator may, by a direction to an investigator, control—
	(a) the scope of the investigation,
	(b) the period during which the investigation is to be conducted,
	(c) the conduct of the investigation, and
	(d) the reporting of the investigation.
	(8) A direction may, in particular—
	(a) confine the investigation to particular matters;
	(b) extend the investigation to additional matters;
	(c) require the investigator to discontinue the investigation or to take only those steps that are specified in the direction;
	(d) require the investigator to make such interim reports as are so specified.
	(9) If there is a change in the scope or conduct of the investigation and, in the opinion of the Payment Systems Regulator, the person who is the subject of the investigation is likely to be significantly prejudiced by not being made aware of it, that person must be given written notice of the change.”
	60YY: After Clause 12, insert the following new Clause—
	“Powers of persons appointed under section (Appointment of persons to conduct investigations)
	(1) An investigator may require any person within subsection (2) —
	(a) to attend before the investigator at a specified time and place and answer questions, or
	(b) otherwise to provide any information which the investigator requires.
	(2) The persons referred to in subsection (1) are—
	(a) the person who is the subject of the investigation (“the person under investigation”);
	(b) any person connected with the person under investigation;
	(c) in the case of an investigation into whether there has been a compliance failure, any person who in the investigator’s opinion is or may be able to give information which is or may be relevant to the investigation.
	(3) An investigator may also require any person to produce at a specified time and place any specified documents or documents of a specified description.
	(4) A requirement under subsection (1) or (3) may be imposed only so far as the investigator concerned reasonably considers the question, provision of information or production of the document to be relevant to the purposes of the investigation.
	(5) In the case of an investigation into whether there has been a compliance failure, the investigator may also require any person falling within subsection (2)(c) to give the investigator all assistance in connection with the investigation which the person is reasonably able to give.
	(6) For the purposes of this section, a person is connected with the person under investigation (“A”) if the person is or has at any relevant time been—
	(a) a member of A’s group,
	(b) a controller of A, or
	(c) a partnership of which A is a member.
	(7) In this section—
	“controller” has the same meaning as in FSMA 2000 (see section 422 of that Act);
	“group” has the same meaning as in FSMA 2000 (see section 421 of that Act);
	“investigator” means a person conducting an investigation under section (Appointment of persons to conduct investigations);
	“specified” means specified in a notice in writing.”
	60YYA: After Clause 12, insert the following new Clause—
	“Information and documents: supplemental provisions
	(1) In this section “relevant document” means a document produced in response to a requirement imposed under section (Power to obtain information or documents) or (Powers of persons appointed under section (Appointment of persons to conduct investigations)).
	(2) In a case where—
	(a) the Payment Systems Regulator has power under section (Power to obtain information or documents), or an investigator has power under section (Powers of persons appointed under section (Appointment of persons to conduct investigations)), to require a person to produce a document, but
	(b) it appears that the document is in the possession of another person,
	the power may be exercised in relation to that other person.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(3) Any person to whom a relevant document is produced may—
	(a) take copies or extracts from the document, or
	(b) require the person producing the document, or any relevant person (see subsection (4)), to provide an explanation of the document.
	(4) “Relevant person”, in relation to a person who is required to produce a document, means a person who—
	(a) has been or is or is proposed to be a director or controller of that person,
	(b) has been or is an auditor of that person,
	(c) has been or is an actuary, accountant or lawyer appointed or instructed by that person, or
	(d) has been or is an employee of that person.
	(5) A relevant document may be retained for so long as the person to whom it is produced considers that it is necessary to retain it (rather than copies of it) for the purposes for which the document was requested.
	(6) If the person to whom a relevant document is produced has reasonable grounds for believing—
	(a) that the document may have to be produced for the purposes of any legal proceedings, and
	(b) that it might otherwise be unavailable for those purposes,
	it may be retained until the proceedings are concluded.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(7) If a person who is required under section (Power to obtain information or documents) or (Powers of persons appointed under section (Appointment of persons to conduct investigations)) to produce a document fails to do so, the Payment Systems Regulator or an investigator may require the person to state, to the best of the person’s knowledge and belief, where the document is.
	(8) A lawyer may be required under section (Power to obtain information or documents), (Powers of persons appointed under section (Appointment of persons to conduct investigations)) or this section to provide the name and address of a client.
	(9) A person may not be required under section (Power to obtain information or documents), (Powers of persons appointed under section (Appointment of persons to conduct investigations)) or this section to disclose information or produce a document in respect of which the person owes an obligation of confidence as a result of carrying on the business of banking unless—
	(a) the person is the person under investigation or a member of that person’s group;
	(b) the person to whom the obligation of confidence is owed is the person under investigation or a member of that person’s group;
	(c) the person to whom the obligation of confidence is owed consents to the disclosure or production, or
	(d) the imposing on the person of a requirement with respect to such information or document has been specifically authorised by the Payment Systems Regulator.
	(10) If a person claims a lien on a document, its production under section (Power to obtain information or documents) or (Powers of persons appointed under section (Appointment of persons to conduct investigations)) does not affect the lien.
	(11) In this section—
	“controller” has the same meaning as in FSMA 2000 (see section 422 of that Act);
	“group” has the same meaning as in FSMA 2000 (see section 421 of that Act);
	“investigator” means a person appointed under section (Appointment of persons to conduct investigations).”
	60YYB: After Clause 12, insert the following new Clause—
	“Admissibility of statements made to investigators
	(1) A statement made to an investigator by a person in compliance with an information requirement is admissible in evidence in any proceedings, so long as it also complies with any requirements governing the admissibility of evidence in the circumstances in question.
	(2) But in criminal proceedings in which that person is charged with an offence to which this subsection applies—
	(a) no evidence relating to the statement may be adduced by or on behalf of the prosecution, and
	(b) no question relating to the statement may be asked by or on behalf of the prosecution,
	unless evidence relating to the statement is adduced, or a question relating to it is asked, in the proceedings by or on behalf of that person.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(3) Subsection (2) applies to any offence other than—
	(a) an offence under section (Enforcement of information and investigation powers)(6);
	(b) an offence under section 5 of the Perjury Act 1911 (false statements made otherwise than on oath);
	(c) an offence under section 44(2) of the Criminal Law (Consolidation) (Scotland) Act 1995 (false statements made otherwise than on oath);
	(d) an offence under Article 10 of the Perjury (Northern Ireland) Order 1979.
	(4) In this section—
	“information requirement” means a requirement imposed by an investigator under section (Powers of persons appointed under section (Appointment of persons to conduct investigations)) or (Information and documents: supplemental provisions);
	“investigator” means a person appointed under section (Appointment of persons to conduct investigations).”
	60YYC: After Clause 12, insert the following new Clause—
	“Entry of premises under warrant
	(1) A justice of the peace may issue a warrant under this section if satisfied on information on oath given by or on behalf of the Payment Systems Regulator or an investigator that there are reasonable grounds for believing that the first or second set of conditions is satisfied.
	(2) The first set of conditions is—
	(a) that a person on whom an information requirement has been imposed has failed (wholly or in part) to comply with it, and
	(b) that on the premises specified in the warrant—
	(i) there are documents which have been required, or
	(ii) there is information which has been required.
	(3) In this section “information requirement” means—
	(a) a requirement imposed by the Payment Systems Regulator under section (Power to obtain information or documents) or (Information and documents: supplemental provision), or
	(b) a requirement imposed by an investigator under section (Powers of persons appointed under section (Appointment of persons to conduct investigations)) or (Information and documents: supplemental provisions).
	(4) The second set of conditions is—
	(a) that the premises specified in the warrant are premises of a participant in a regulated payment system,
	(b) that there are on the premises documents or information in relation to which an information requirement could be imposed, and
	(c) that if such a requirement were to be imposed—
	(i) it would not be complied with, or
	(ii) the documents or information to which it related would be removed, tampered with or destroyed.
	(5) A warrant under this section authorises a constable—
	(a) to enter the premises specified in the warrant,
	(b) to search the premises and take possession of any documents or information appearing to be documents or information of a kind in respect of which a warrant under this section was issued (“the relevant kind”) or to take, in relation to any such documents or information, any other steps which may appear to be necessary for preserving them or preventing interference with them,
	(c) to take copies of, or extracts from, any documents or information appearing to be of the relevant kind,
	(d) to require any person on the premises to provide an explanation of any document or information appearing to be of the relevant kind or to state where it may be found, and
	(e) to use such force as may be reasonably necessary.
	(6) A warrant under this section may be executed by any constable.
	(7) The warrant may authorise persons to accompany any constable who is executing it.
	(8) The powers in subsection (5) may be exercised by a person who—
	(a) is authorised by the warrant to accompany a constable, and
	(b) exercises those powers in the company of, and under the supervision of, a constable.
	(9) In England and Wales, sections 15(5) to (8) and 16(3) to (12) of the Police and Criminal Evidence Act 1984 (execution of search warrants and safeguards) apply to warrants issued under this section.
	(10) In Northern Ireland, Articles 17(5) to (8) and 18(3) to (12) of the Police and Criminal Evidence (Northern Ireland) Order 1989 apply to warrants issued under this section.
	(11) This section has effect in relation to Scotland as if—
	(a) for any reference to a justice of the peace there were substituted a reference to a justice of the peace or a sheriff, and
	(b) for any reference to information on oath there were substituted a reference to evidence on oath.
	(12) In this section “investigator” means a person appointed under section (Appointment of persons to conduct investigations).”
	60YYD: After Clause 12, insert the following new Clause—
	“Retention of documents taken under section (Entry of premises under warrant)
	(1) Any document of which possession is taken under section (Entry of premises under warrant) (“a seized document”) may be retained so long as it is necessary to retain it (rather than copies of it) in the circumstances.
	(2) A person claiming to be the owner of a seized document may apply to a magistrates’ court or (in Scotland) the sheriff for an order for the delivery of the document to the person appearing to the court or sheriff to be the owner.
	(3) If on an application under subsection (2) the court or (in Scotland) the sheriff cannot ascertain who is the owner of the seized document the court or sheriff (as the case may be) may make such order as the court or sheriff thinks fit.
	(4) An order under subsection (2) or (3) does not affect the right of any person to take legal proceedings against any person in possession of a seized document for the recovery of the document.
	(5) Any right to bring proceedings (as described in subsection (4)) may only be exercised within 6 months of the date of the order made under subsection (2) or (3).”
	60YYE: After Clause 12, insert the following new Clause—
	“Enforcement of information and investigation powers
	(1) If a person other than an investigator (“the defaulter”) fails to comply with a requirement imposed under any of sections (Power to obtain information or documents) to (Entry of premises under warrant), the person imposing the requirement may certify that fact in writing to the court.
	(2) If the court is satisfied that the defaulter failed without reasonable excuse to comply with the requirement, it may deal with the defaulter (and in the case of a body corporate, any director or other officer of the body) as if that person were in contempt.
	(3) In subsection (2) “officer”, in relation to a limited liability partnership, means a member of the limited liability partnership.
	(4) A person who knows or suspects that an investigation is being or is likely to be conducted under section (Appointment of persons to conduct investigations) is guilty of an offence if the person—
	(a) falsifies, conceals, destroys or otherwise disposes of a document which the person knows or suspects is or would be relevant to such an investigation, or
	(b) causes or permits the falsification, concealment, destruction or disposal of such a document.
	(5) It is a defence for a person charged with an offence under subsection (4) to show that the person had no intention of concealing facts disclosed by the documents from the investigator.
	(6) A person is guilty of an offence if the person, in purported compliance with a requirement imposed under any of sections (Power to obtain information or documents) to (Entry of premises under warrant)—
	(a) provides information which the person knows to be false or misleading in a material particular, or
	(b) recklessly provides information which is false or misleading in a material particular.
	(7) A person guilty of an offence under subsection (4) or (6) is liable—
	(a) on summary conviction—
	(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;
	(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;
	(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;
	(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine, or both.
	(8) Any person who intentionally obstructs the exercise of any rights conferred by a warrant under section (Entry of premises under warrant) is guilty of an offence and liable on summary conviction—
	(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks (or 3 months, if the offence was committed before the commencement of section 280(2) of the Criminal Justice Act 2003) or a fine, or both;
	(b) in Scotland, to imprisonment for a term not exceeding 3 months or a fine not exceeding level 5 on the standard scale, or both;
	(c) in Northern Ireland, to imprisonment for a term not exceeding 3 months or a fine not exceeding level 5 on the standard scale, or both.
	(9) In this section—
	“court” means the High Court or, in Scotland, the Court of Session;
	“investigator” means a person appointed under section (Appointment of persons to conduct investigations).”
	60YYF: After Clause 12, insert the following new Clause—
	“Guidance
	(1) The Payment Systems Regulator may give guidance consisting of such information and advice as it considers appropriate—
	(a) with respect to the operation of specified provisions of this Part;
	(b) with respect to any other matter relating to its functions under this Part;
	(c) with respect to any other matters about which it appears to the Payment Systems Regulator to be desirable to give information or advice.
	(2) Guidance given by the Payment Systems Regulator under this section must include guidance about how it intends to advance
	its payment systems objectives in discharging its functions under this Part in relation to different categories of payment system or participants in payment systems.
	(3) In this Part “general guidance” means guidance given by the Payment Systems Regulator under this section which—
	(a) is given—
	(i) to persons generally,
	(ii) to participants in payment systems, or regulated payment systems, generally, or
	(iii) to a class of participant in a payment system or regulated payment system,
	(b) is intended to have continuing effect, and
	(c) is given in writing or other legible form.
	(4) The Payment Systems Regulator may give financial or other assistance to persons giving information or advice of a kind which the Payment Systems Regulator could give under this section.
	(5) The Payment Systems Regulator may—
	(a) publish its guidance,
	(b) offer copies of its published guidance for sale at a reasonable price, and
	(c) if it gives guidance in response to a request made by any person, make a reasonable charge for that guidance.”
	60YYG: After Clause 12, insert the following new Clause—
	“Reports
	(none) If it considers that it is desirable to do so in order to advance any of its payment systems objectives, the Payment Systems Regulator may prepare and publish a report into any matter which it considers relevant to the exercise of its functions under this Part.”
	60YYH: After Clause 12, insert the following new Clause—
	“Duty of regulators to ensure co-ordinated exercise of functions
	(1) The following are regulators for the purposes of this section—
	(a) the Payment Systems Regulator;
	(b) the Bank of England;
	(c) the FCA;
	(d) the PRA.
	(2) The regulators must co-ordinate the exercise of their relevant functions (see subsection (5)) with a view to ensuring—
	(a) that each regulator consults every other regulator (where not otherwise required to do so) in connection with any proposed exercise of a relevant function in a way that may have a material adverse effect on the advancement by that other regulator of any of its objectives;
	(b) that where appropriate each regulator obtains information and advice from every other regulator in connection with the exercise of its relevant functions in relation to matters of common regulatory interest in cases where the other regulator may be expected to have relevant information or relevant expertise.
	(3) The duty in subsection (2) applies only to the extent that compliance with the duty—
	(a) is compatible with the advancement by each regulator of any of its objectives, and
	(b) does not impose a burden on the regulators that is disproportionate to the benefits of compliance.
	(4) A function conferred on a regulator relates to matters of common regulatory interest if—
	(a) another regulator exercises similar or related functions in relation to the same persons,
	(b) another regulator exercises functions which relate to different persons but relate to similar subject-matter, or
	(c) its exercise could affect the advancement by another regulator of any of its objectives.
	(5) “Relevant functions” means—
	(a) in relation to the Payment Systems Regulator, its functions under this Part;
	(b) in relation to the Bank of England, its functions under Part 5 of the Banking Act 2009 (inter-bank payment systems);
	(c) in relation to the FCA, the functions conferred on it by or under FSMA 2000 (see section 1A(6) of that Act);
	(d) in relation to the PRA, the functions conferred on it by or under FSMA 2000 (see section 2A(6) of that Act).
	(6) “Objectives” means—
	(a) in relation to the Payment Systems Regulator, its payment systems objectives;
	(b) in relation to the Bank of England, its Financial Stability Objective under section 2A of the Bank of England Act 1998;
	(c) in relation to the FCA, its strategic objective and operational objectives under section 1B of FSMA 2000;
	(d) in relation to the PRA, its general objective under section 2B of that Act.”
	60YYJ: After Clause 12, insert the following new Clause—
	“Memorandum of understanding
	(1) The following are regulators for the purposes of this section—
	(a) the Payment Systems Regulator;
	(b) the Bank of England;
	(c) the FCA;
	(d) the PRA.
	(2) The regulators must prepare and maintain a memorandum which describes in general terms—
	(a) the role of each regulator in relation to the exercise of relevant functions which relate to matters of common regulatory interest, and
	(b) how the regulators intend to comply with section (Duty of regulators to ensure co-ordinated exercise of functions) in relation to the exercise of such functions.
	(3) The regulators must review the memorandum at least once in each calendar year.
	(4) The regulators must give the Treasury a copy of the memorandum and any revised memorandum.
	(5) The Treasury must lay before Parliament a copy of any document received by them under this section.
	(6) The regulators must ensure that the memorandum as currently in force is published in the way appearing to them to be best calculated to bring it to the attention of the public.
	(7) The memorandum need not relate to any aspect of compliance with section (Duty of regulators to ensure co-ordinated exercise of functions) if the regulators consider—
	(a) that publication of information about that aspect would be against the public interest, or
	(b) that that aspect is a technical or operational matter not affecting the public.
	(8) In this section—
	(a) the reference in subsection (2)(a) to matters of common regulatory interest is to be read in accordance with section (Duty of regulators to ensure co-ordinated exercise of functions)(4), and
	(b) references to relevant functions are to be read in accordance with section (Duty of regulators to ensure co-ordinated exercise of functions)(5).”
	60YYK: After Clause 12, insert the following new Clause—
	“Power of Bank to require Regulator to refrain from specified action
	(1) Where the first, second and third conditions are met, the Bank of England may give a direction under this section to the Payment Systems Regulator.
	(2) The first condition is that the Payment Systems Regulator is proposing to exercise any of its powers under this Part in relation to a participant in a regulated payment system.
	(3) The second condition is that the Bank of England is of the opinion that the exercise of the power in the manner proposed may—
	(a) threaten the stability of the UK financial system,
	(b) have serious consequences for business or other interests in the United Kingdom, or
	(c) have an adverse effect on the Bank’s ability to act in its capacity as a monetary authority.
	(4) The third condition is that the Bank of England is of the opinion that the giving of the direction is necessary in order to avoid the possible consequence falling within subsection (3).
	(5) A direction under this section is a direction requiring the Payment Systems Regulator not to exercise the power or not to exercise it in a specified manner.
	(6) The direction may be expressed to have effect during a specified period or until revoked.
	(7) The Payment Systems Regulator is not required to comply with a direction under this section if or to the extent that in the opinion of the Payment Systems Regulator compliance would be incompatible with any EU obligation or any other international obligation of the United Kingdom.”
	60YYL: After Clause 12, insert the following new Clause—
	“Power of FCA to require Regulator to refrain from specified action
	(1) Where the first, second and third conditions are met, the FCA may give a direction under this section to the Payment Systems Regulator.
	(2) The first condition is that the Payment Systems Regulator is proposing to exercise any of its powers under this Part in relation to a participant in a regulated payment system.
	(3) The second condition is that the FCA is of the opinion that the exercise of the power in the manner proposed may have an adverse effect on the ability of the FCA to comply with its duty under section 1B(1) of FSMA 2000 (FCA’s general duties).
	(4) The third condition is that the FCA is of the opinion that the giving of the direction is necessary in order to avoid the possible consequence falling within subsection (3).
	(5) A direction under this section is a direction requiring the Payment Systems Regulator not to exercise the power or not to exercise it in a specified manner.
	(6) The direction may be expressed to have effect during a specified period or until revoked.
	(7) The Payment Systems Regulator is not required to comply with a direction under this section if or to the extent that in the opinion of the Payment Systems Regulator compliance would be incompatible with any EU obligation or any other international obligation of the United Kingdom.”
	60YYM: After Clause 12, insert the following new Clause—
	“Power of PRA to require Regulator to refrain from specified action
	(1) Where the first, second and third conditions are met, the PRA may give a direction under this section to the Payment Systems Regulator.
	(2) The first condition is that the Payment Systems Regulator is proposing to exercise any of its powers under this Part in relation to—
	(a) a class of PRA-authorised persons, or
	(b) a particular PRA-authorised person.
	(3) The second condition is that the PRA is of the opinion that the exercise of the power in the manner proposed may—
	(a) threaten the stability of the UK financial system,
	(b) result in the failure of a PRA-authorised person in a way that would have an adverse effect on the stability of the UK financial system, or
	(c) have an adverse effect on the ability of the PRA to comply with its duty under section 2B(1) of FSMA 2000 (the PRA’s general objective).
	(4) The third condition is that the PRA is of the opinion that the giving of the direction is necessary in order to avoid the possible consequence falling within subsection (3).
	(5) A direction under this section is a direction requiring the Payment Systems Regulator not to exercise the power or not to exercise it in a specified manner.
	(6) The direction may be expressed to have effect during a specified period or until revoked.
	(7) The Payment Systems Regulator is not required to comply with a direction under this section if or to the extent that in the opinion of the Payment Systems Regulator compliance would be incompatible with any EU obligation or any other international obligation of the United Kingdom.
	(8) The reference in subsection (3)(b) to the “failure” of a PRA-authorised person is to be read in accordance with section 2J(3) and (4) of FSMA 2000.
	(9) In this section “PRA-authorised person” has the same meaning as in FSMA 2000 (see section 2B(5) of that Act).”
	60YYN: After Clause 12, insert the following new Clause—
	“Regulator’s general duty to consult
	(1) The Payment Systems Regulator must make and maintain effective arrangements for consulting relevant persons on—
	(a) the extent to which its general policies and practices are consistent with its general duties under section (Regulator’s general duties in relation to payment systems), and
	(b) how its payment systems objectives may best be achieved.
	(2) The following are “relevant persons” for the purposes of this section—
	(a) participants in regulated payment systems, and
	(b) those who use, or are likely to use, services provided by regulated payment systems.
	(3) Arrangements under this section must include the establishment and maintenance of one or more panels of persons to represent the interests of relevant persons.
	(4) Where the Payment Systems Regulator establishes a panel under subsection (3), it must appoint one of the members of the panel to be its chair.
	(5) The Treasury’s approval is required for the appointment or dismissal of the chair of a panel established under subsection (3).
	(6) The Payment Systems Regulator must—
	(a) consider representations that are made to it in accordance with arrangements made under this section, and
	(b) from time to time publish, in such manner as it thinks fit, responses to the representations.”
	60YYP: After Clause 12, insert the following new Clause—
	“Consultation by the Regulator in relation to generally applicable requirements
	(1) In this section references to imposing a generally applicable requirement are to—
	(a) giving a general direction, or
	(b) imposing a requirement under section (System rules) that applies to all operators of regulated payment systems,
	and references to the requirement are to be read accordingly.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(2) Before imposing a generally applicable requirement, the Payment Systems Regulator must—
	(a) consult the Bank of England, the FCA and the PRA, and
	(b) after doing so, publish a draft of the proposed requirement in the way appearing to the Payment Systems Regulator to be best calculated to bring it to the attention of the public.
	(3) The draft must be accompanied by—
	(a) a cost benefit analysis,
	(b) an explanation of the purpose of the proposed requirement,
	(c) an explanation of the Payment Systems Regulator’s reasons for believing that imposing the requirement is compatible with its duties under section (Regulator’s general duties in relation to payment systems), and
	(d) notice that representations about the proposed requirement may be made to the Payment Systems Regulator within a specified time.
	(4) Before imposing the proposed requirement the Payment Systems Regulator must have regard to any representations made to it in accordance with subsection (3)(d).
	(5) If the Payment Systems Regulator proposes to impose the requirement, it must publish an account, in general terms, of—
	(a) the representations made to it in accordance with subsection (3)(d), and
	(b) its response to them.
	(6) If the requirement differs from the draft published under subsection (2)(b) in a way which is, in the opinion of the Payment Systems Regulator, significant the Payment Systems Regulator must (in addition to complying with subsection (5)) publish details of the difference together with a cost benefit analysis.
	(7) For the purposes of this section a “cost benefit analysis” is—
	(a) an analysis of the costs together with an analysis of the benefits that will arise—
	(i) if the proposed requirement is imposed, or
	(ii) if subsection (6) applies, from the requirement imposed, and
	(b) subject to subsection (8), an estimate of those costs and of those benefits.
	(8) If, in the opinion of the Payment Systems Regulator—
	(a) the costs or benefits referred to in subsection (7) cannot reasonably be estimated, or
	(b) it is not reasonably practicable to produce an estimate,
	the cost benefit analysis need not estimate them, but must include a statement of the Payment Systems Regulator’s opinion and an explanation of it.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(9) The Payment Systems Regulator may charge a reasonable fee for providing a person with a copy of a draft published under subsection (2)(b).
	(10) Subsections (2)(b) and (3) to (6) do not apply if the Payment Systems Regulator considers that the delay involved in complying with them would be prejudicial to the interests of those who use, or are likely to use, services provided by regulated payment systems.
	(11) Subsections (3)(a) and (6) do not apply if the Payment Systems Regulator considers that, making the appropriate comparison—
	(a) there will be no increase in costs, or
	(b) there will be an increase in costs but the increase will be of minimal significance.
	(12) In subsection (11) the “appropriate comparison” means—
	(a) in relation to subsection (3)(a), a comparison between the overall position if the requirement is imposed and the overall position if it is not imposed;
	(b) in relation to subsection (6), a comparison between the overall position after the imposing of the requirement and the overall position before it was imposed.”
	60YYQ: After Clause 12, insert the following new Clause—
	“Independent inquiries
	(1) Section 68 of the Financial Services Act 2012 (cases in which Treasury may arrange independent inquiries) is amended as follows.
	(2) In subsection (1), for “two” substitute “three”.
	(3) After subsection (3) insert—
	“(3A) The third case is where it appears to the Treasury that—
	(a) events have occurred in relation to a regulated payment system which caused or risked causing significant damage to business or other interests throughout the United Kingdom, and
	(b) those events might not have occurred, or the threat or damage might have been reduced, but for a serious failure in—
	(i) the system established by Part 5 of the Financial Services (Banking Reform) Act 2013 for the regulation of payment systems, or
	(ii) the operation of that system.”
	(4) In section 83(1) (interpretation), after the definition of “regulated activity” insert—
	““regulated payment system” has the same meaning as in Part 5 of the Financial Services (Banking Reform) Act 2013 (see section (Interpretation) of that Act);”.”
	60YYR: After Clause 12, insert the following new Clause—
	“Investigations into regulatory failure
	(1) Part 5 of the Financial Services Act 2012 (inquiries and investigations) is amended as follows.
	(2) After section 76 insert—
	“76A Duty of Payment Systems Regulator to investigate and report on possible regulatory failure
	(1) Subsection (3) applies where it appears to the Payment Systems Regulator that—
	(a) events have occurred in relation to a regulated payment system which had or could have had a significant adverse effect on effective competition in the interests of—
	(i) participants in the payment system, or
	(ii) those who use, or are likely to use, the services provided by the payment system, and
	(b) those events might not have occurred, or the adverse effect might have been reduced, but for a serious failure in—
	(i) the system established by Part 5 of the Financial Services (Banking Reform) Act 2013 for the regulation of payment systems, or
	(ii) the operation of that system.
	(2) Subsection (3) also applies where the Treasury direct the Payment Systems Regulator that it appears to the Treasury that the conditions in subsection (1) are met in relation to specified events.
	(3) The Payment Systems Regulator must carry out an investigation into the events and the circumstances surrounding them and report to the Treasury on the result of the investigation.
	(4) Subsection (3) does not apply by virtue of subsection (1) if the Treasury direct the Payment Systems Regulator that it is not required to carry out an investigation into the events concerned.
	(5) In this section “participant”, in relation to a regulated payment system, has the same meaning as in Part 5 of the Financial Services (Banking Reform) Act 2013 (see section (Participants in payment systems etc) of that Act).”
	(5) In section 77 (power of Treasury to require FCA or PRA to undertake investigation)—
	(a) in subsection (1)(a), for “either regulator” substitute “a regulator”;
	(b) in subsection (3), omit the “or” at the end of paragraph (b) and after paragraph (c) insert “, or
	(d) a regulated payment system.”;
	(c) the heading of that section becomes “Power of Treasury to require regulator to undertake investigation”.
	(6) In section 78 (conduct of investigation), in subsection (1), for “or 74” substitute “, 74 or 76A”.
	(7) In section 79 (conclusion of investigation), for “or 74” substitute “, 74 or 76A”.
	(8) In section 80 (statements of policy), in subsection (1)(a), for “or 74” substitute “, 74 or 76A”.
	(9) In section 81 (publication of directions), in subsection (1), after paragraph (b) insert—
	“(ba) section 76A(4);”.
	(10) In section 83(1) (interpretation)—
	(a) after the definition of “listed securities” insert—
	““the Payment Systems Regulator” means the body established under section (The Payment Systems Regulator) of the Financial Services (Banking Reform) Act 2013;”;
	(b) in the definition of “regulator”, for “or the PRA” substitute “, the PRA or the Payment Systems Regulator”.”
	60YYS: After Clause 12, insert the following new Clause—
	“Competition scrutiny
	(1) Chapter 4 of Part 9A of FSMA 2000 (competition scrutiny) applies to the Payment Systems Regulator’s practices and regulating provisions in relation to payment systems as it applies to the FCA’s practices and regulating provisions within the meaning of that Chapter.
	(2) In subsection (1)—
	(a) the reference to the Payment Systems Regulator’s practices in relation to payment systems is a reference to practices adopted by it in the exercise of functions under this Part, and
	(b) the reference to the Payment Systems Regulator’s regulating provisions in relation to payment systems is a reference to the following—
	(i) any general directions given under section (Directions);
	(ii) any requirements imposed under section (System rules) on all operators of regulated payment systems;
	(iii) any guidance given under section (Guidance).”
	60YYT: After Clause 12, insert the following new Clause—
	“Relationship with Part 8 of the Payment Services Regulations 2009
	(1) The Payment Systems Regulator may not exercise any power under this Part for the purposes of enabling a relevant person to obtain access to, or otherwise participate in, a payment system if the payment system is one to which Part 8 of the Payment Services Regulations 2009 (S.I. 2009/209) does not apply.
	(2) A person is a “relevant person” for the purposes of subsection (1) if regulation 97 of the Payment Services Regulations 2009 (prohibition on restrictive rules on access to payment systems) applies in relation to access to, or participation in, a payment system by the person.”
	60YYU: After Clause 12, insert the following new Clause—
	“Exemption from liability in damages for FCA and PRA
	(1) In paragraph 25 of Schedule 1ZA to FSMA 2000 (FCA’s exemption from liability in damages), after sub-paragraph (1) insert—
	“(1A) In sub-paragraph (1) the reference to the FCA’s functions includes its functions under Part 5 of the Financial Services (Banking Reform) Act 2013 (regulation of payment systems).”
	(2) In paragraph 33 of Schedule 1ZB to FSMA 2000 (PRA’s exemption from liability in damages), after sub-paragraph (1) insert—
	“(1A) In sub-paragraph (1) the reference to the PRA’s functions includes its functions under Part 5 of the Financial Services (Banking Reform) Act 2013 (regulation of payment systems).”
	(3) For provision conferring immunity from liability in damages on the Bank of England in respect of its functions, see section 244 of the Banking Act 2009.”
	60YYV: After Clause 12, insert the following new Clause—
	“Interpretation
	(1) In this Part—
	“compliance failure” has the meaning given by section (Meaning of “compliance failure”);
	“designation order” has the meaning given by section (Designation orders);
	“direct access”, in relation to a payment system, is to be read in accordance with section (Participants in payment systems etc)(6);
	“document” includes information recorded in any form and, in relation to information recorded otherwise than in legible form, references to its production include references to producing a copy of the information in legible form or in a form from which it can readily be produced in visible and legible form;
	“general direction” has the meaning given by section (Directions)(5);
	“general guidance” has the meaning given by section (Guidance)(3);
	“infrastructure provider”, in relation to a payment system, has the meaning given by section (Participants in payment systems etc)(4);
	“operator”, in relation to a payment system, has the meaning given by section (Participants in payment systems etc)(3);
	“participant”, in relation to a payment system, has the meaning given by section (Participants in payment systems etc) (and references to participation in a payment system are to be read in accordance with that section);
	“payment service provider”, in relation to a payment system, has the meaning given by section (Participants in payment systems etc)(5);
	“payment system” has the meaning given by section (Meaning of “payment system”);
	“recognised inter-bank payment system” means an inter-bank payment system (within the meaning of Part 5 of the Banking Act 2009) specified as a recognised system for the purposes of that Part;
	“regulated payment system” means a payment system designated as a regulated payment system by a designation order;
	“the UK financial system” has the meaning given by section 1I of FSMA 2000.
	(2) References in this Part to the Payment Systems Regulator’s payment systems objectives are to be read in accordance with section (Regulator’s general duties in relation to payment systems)(2).
	(3) References in this Part to the Bank of England’s capacity as a monetary authority are to be read in accordance with section 244 of the Banking Act 2009.”
	Amendments 60B to 60YYV agreed.
	House resumed. Committee to begin again not before 8.53 pm.

Children: Sexual Abuse
	 — 
	Question for Short Debate

Baroness Howarth of Breckland: To ask Her Majesty’s Government what steps they are taking to prevent child sex abuse, and what support they are giving to organisations involved in preventing such abuse.

Baroness Howarth of Breckland: My Lords, research suggests that at least one in 20 young adults in the UK experienced sexual abuse as a child, but most incidents are not reported to the police. Three-quarters of children who are abused do not tell anyone about it at the time, as has been so graphically illustrated by the Jimmy Savile scandal. Services for children and telephone helplines are a key part of the child protection framework, but it is for the Government to set that framework and to ensure that local authorities, working through their safeguarding programmes, together with the voluntary sector, carry this forward.
	I therefore welcome the consultancy group established by Damian Green in the other place and I ask the Minister, the noble Lord, Lord Taylor, to ensure that this debate is brought to his attention and to that of the chair of the group. My own assessment is that primary prevention remains a weak link in the plans, with emphasis on secondary and tertiary prevention. That means that we need more emphasis on ensuring that every effort is made to stop it before it happens—in the words of the campaign, “Stop it now”. In addition, there appears to be a gap in the work of the group relating to young people and children who abuse other children. Only if these two areas are placed at the centre of the work of the Home Office group will it come anywhere near its mission of:
	“Reducing the vulnerability of victims”.
	With this issue having such a high profile, I am indeed grateful to be given the opportunity for this debate, although in 10 minutes I can but scratch the surface. Good intervention will make all the difference to thousands of children, for the numbers, despite the progress that we have made, remain disturbing.
	A recent NSPCC report looking at the disclosure of childhood abuse shows that one in 20 children being abused equates, in 2012-13, to 18,195 sexual crimes against children under l6 being recorded in England and Wales. It also says that, despite the recent high-profile
	celebrity cases, 90% of children are being abused by someone they know. This often happens in their own home, and that is something that we should not lose sight of. Around one-third of offences are perpetrated by other children and young people, as I have just mentioned.
	The present system still leaves too much responsibility on the child victim when ultimately it is for adults to protect children from abuse. One of those adults who made a step change was Lucy Faithfull, and I declare an interest as a vice-chair of the Lucy Faithfull Foundation. As a Conservative Peer of some standing, she caused consternation to her Whips by leading mini-revolts on children’s issues. She was committed to her party but she was just more committed to children. As a children’s officer, she understood the issues around child sexual abuse well before many of her colleagues. Therefore, when asked to help the Gracewell Clinic, which later became the Lucy Faithfull Foundation, she took it to her heart. She deserves that the present Government support her legacy.
	This year is the 20th anniversary of the foundation but the work has not been without its difficulties. Despite the skilled staff leading in the field of understanding the treatment of abusers and the highly successful clinic at Epsom, it was closed when the hospital was redeveloped. The then Government promised to fund an alternative site—indeed, to develop a range of similar facilities based on the knowledge and success of the clinic, but they never materialised. I am afraid that we had placards outside some of the facilities held by children saying, “Not on our doorstep”. One understands this, but during our whole time at Epsom we never had one incident when a man stepped outside the boundaries that he had been set in his programme. I wonder how much further we might be in the work had the clinic continued, and I ask the Minister what plans the Government have to give community residential programmes to men discharged from prison at a time when these men are most vulnerable to reoffending.
	Before I move on, I acknowledge and commend the work of Circles of Support, a scheme developed by the Quakers, where volunteers provide a safe place for men who have offended and returned home. Most people shun these men for what they have done, which is understandable. It takes a very special volunteer to befriend them, but in doing so they are an essential part of protecting children, as well as giving these men new hope. We have to remember that whatever they have done they have to continue their lives, and unless they are helped they remain a danger to children.
	When I collaborated with Lucy in the days before the foundation, I was chief executive of ChildLine. It was even more difficult then than now for children to be listened to and believed, and I congratulate all who have worked to shorten the time before children come forward. The changes in court procedures and safeguarding programmes have helped but there remains room for improvement. What work continues to ensure that courts are child-friendly while still quite properly ensuring a fair hearing for the defendant? We still hear of children being intimidated in court even when they are placed behind screens, and there should be more room for them to have advocates.
	During the collaboration between ChildLine and the Lucy Faithfull Foundation in the early 2000s, it became apparent that there was a need for a helpline to give advice to adults concerned about their own thoughts and feelings towards children. ChildLine volunteers were trained to focus on children, so in 2003 the Stop it Now! confidential freephone service was launched by the foundation. It has grown from taking 1,000 calls in 2003 to just under 6,000 calls in 2012. The demand has grown despite limited publicity and no advertising. Calls are taken from adult abusers and those at risk of abusing. Time does not allow me to give too many examples, but they tell the story. The group for whom there is most concern if they fail to get help consists of abusers and those at risk of abuse. Paul, a window cleaner, was having sexual thoughts about children. He went to the police for help, but was told they could deal with him only if he committed an offence. They suggested that he talk to the probation service, which said that it could offer treatment only if he had been convicted of an offence, so he went to his GP who told him that everyone had these thoughts occasionally. Finally, he found the helpline and received advice on how to manage these thoughts and the terrible things that he felt tempted to do. Other groups calling for help include parents and young men accessing indecent images of children online.
	Core funding for the helpline comes from a grant from the Ministry of Justice without which the service could not continue, so the foundation would like to acknowledge the wisdom of this support in difficult times. It is topped up by donations. Your Lordships can understand how difficult it is to raise money to help in this area, and demand has grown to a level which cannot be met. The helpline takes an average of 550 calls a month from 300 callers but has between 1,500 and 2,000 missed calls—missed opportunities to intervene in possible abuse. The work undertaken via a callback service that can provide vital face-to-face meetings is no longer funded, and men can receive that only if they are prepared to pay for it themselves.
	We are of course all familiar with recent developments on the internet and the strong political drive to make the internet safer for children and to reduce the occurrence of online offending involving viewing, downloading, making and/or distributing indecent images of children. I recognise the outstanding work of the Internet Watch Foundation. No doubt this is a topic other noble Lords will cover as it needs more time, but I hope that the Government will continue to press the internet industry to play its part.
	Parents and carers use the line. They are often ill equipped to prevent child sexual abuse of their own children. Research conducted as part of the work of the Lucy Faithfull Foundation with these groups showed that 59% of those questioned were not as confident as they would like to be when it came to protecting their own children. With 7.7 million families in the UK having dependent children, this could mean that 4.5 million families are lacking this confidence. Yet the foundation’s hugely successful Parents Plus programme, part of the Stop it Now! campaign ceased. Not only the groups but other parts of the programme will be closed down. Stop it Now! is fully supported by the
	Governments in Scotland and Wales but sadly not in England. I wonder whether the Minister can explain why the Government have removed their commitment to this programme.
	Children also need the tools to protect themselves, and as part of this have the right to high quality sex and relationship education. The ChildLine Schools Service is an example of how one charity is trying to protect children from abuse by using preventive education in schools, and I am sure that the Minister is aware of the wide support given by professionals to the Daily Telegraph’s call to update the sex and relationship guidance to schools. Does the Department of Education have plans to update this guidance? What steps are being taken to complete the task?
	I have spent a lifetime in this work and know that we could do more, and do it smarter, to prevent the continuing terrible scourge of child sexual abuse. Of course, the work is multifaceted and we should remind ourselves that some abusers are so dangerous that they must never return to the community. My experience has not made me soft but, like Lucy Faithfull, I know that the problem has to be dealt with at every level. I hope that the Government will listen to those calling for a public health model of prevention. This means deterrence, treatment and taking steps to prevent abuse ever taking place through community awareness and education programmes. The impact on victims is long-term and devastating. It costs money in repercussions on the mental health and penal services. We can and should do more to prevent it ever happening to any child in our society.

Baroness Eaton: My Lords, I thank the noble Baroness, Lady Howarth, for initiating this debate, and I regret that in five minutes it is not possible to cover many of the points that I would like to make. I shall concentrate particularly on local government activity in this field.
	In the Bradford district, where I declare an interest as an elected member of the council, the Leeds strategic body for the development and implementation of the district’s response to CSE is the Bradford Safeguarding Children Board. The BSC board is required to ensure that the needs of children and young people who have been or may be sexually exploited, and their families, are considered as it plans and commissions services, develops policies and procedures, ensures that appropriate training is in place, communicates and raises awareness and monitors and evaluates the work that is being done. BSCB and individual agencies, working with children and families, are continuously developing procedures, guidance and information about resources for preventive work and direct work to support children and families during and after victimisation through CSE. Social workers and all agencies recognise that CSE is a dynamic and changing phenomenon. All those involved need to be vigilant in response and there is a need to learn from emerging evidence. Data and research need to be utilised to inform the response to CSE.
	Bradford has a seven-point plan of response. First, the safeguarding children’s board has a multiagency location team, and there is now considerable evidence
	that search co-location is effective in securing evidence to prosecute offenders. Secondly, a bespoke training plan for schools exists, enabling teachers to be able to recognise the signs of grooming and, crucially, to have absolute clarity in relation to the referral pathways. Thirdly, there is a plan for all faith and community leaders to support communities through the damage that is caused by CSE. There is considerable potential for damage to community relations when research data show disproportionate numbers of perpetrators from specific communities.
	Fourthly, there is a supportive network focusing on women and mothers, so that they understand the signs of both perpetrators and victims of CSE. Fifthly, specific work is aimed at boys between the ages of 14 and 17 to tackle the unacceptable attitudes regarding the sexual abuse of any person. A specific product for the Pakistani-origin community exists, which addresses child sexual exploitation and the harm that it has on individuals and communities. Seventhly, it is looking at reducing opportunities for perpetrators to abuse children and young people in hotels and bed and breakfast, licensed and commercial premises. A local campaign has commenced to raise awareness among hoteliers and landlords about the misuse of relevant premises.
	I am the chairman of a charity, Near Neighbours, which works to develop a deepening association between people of different cultures and faiths. There is a need for re-neighbouring neighbourhoods if communities are to have a culture of vigilance to the dangers of abuse. The example this week of a young eastern European woman sold as a sex slave in West Yorkshire shows us that we have a very long way to go.

Baroness Doocey: My Lords, I, too, thank the noble Baroness, Lady Howarth, for providing this opportunity to debate such an important issue. In the short time available, I would like to concentrate on the issue of child trafficking. Most of the children trafficked into, within and from the UK are trafficked for the purpose of abuse. The UK Human Trafficking Centre’s annual assessment identified more than 2,000 potential victims of human trafficking in 2012. Of these, 549 were children—a 12% increase from 2011. Some 152 children were believed to have been trafficked solely for sexual exploitation. The other 397 children were trafficked for criminal exploitation, such as benefit fraud and cannabis cultivation. They may also have been victims of sexual abuse, a tactic often used to control victims. These figures represent only the tip of the iceberg. The true scale of the problem is not recognised because many front-line practitioners do not understand the concept of trafficking and do not identify children who are showing signs of being trafficked. Unless and until these professionals and their managers receive the necessary training, trafficked children will continue to go under the radar and be put at risk of significant harm.
	One of the great success stories in the battle against trafficking was Operation Paladin Child at Heathrow Airport, which did some superb work. Despite this, though, it was merged in 2010 with the Child Protection Unit. The Child Protection Unit has now been merged
	into the Met’s rape command, and the Paladin team now operates only part-time. These mergers risk a loss of focus and, more importantly, a loss of specialist skills. We need clear assurances that protective measures are not being weakened.
	We should welcome the Director of Public Prosecution’s guidelines for prosecutors on how to tackle cases involving child sexual abuse. They are intended to improve the criminal justice system process for children, both as witnesses and as victims. However, this guidance should be extended to cover all forms of exploitation, including all child victims of trafficking.
	The report from the Refugee Council and the Children’s Society, Still at Risk, presents a sober analysis of what has gone wrong. What stands out is the failure of professionals to act on indicators of abuse when the child has no documentation to prove their age, leading many children to be pushed into the adult immigration system without protection. Giving children the benefit of the doubt, an obligation already embedded in various conventions and directives, could so easily rectify this. I would be grateful if the Minister could let the House know if and how the Government are planning to implement the report’s recommendations.
	It might surprise some Peers and members of the public that at present there is no specific offence of child trafficking in law. Instead, it is an aggravating factor in various pieces of legislation that apply to adults and children. This is just not good enough. The Government should therefore consider including separate child-specific offences before introducing the forthcoming modern slavery Bill.
	Tackling the problem of child trafficking will not create huge costs. It is mostly about raising awareness and using existing resources and powers more effectively. The present approach clearly is not working, and there is neither a moral or financial case for leaving things as they are.

Baroness Howe of Idlicote: My Lords, I, too, congratulate the noble Baroness, Lady Howarth, on securing this important debate. One of the challenges presented by the horror of child sex abuse pertains to the way in which it is growing, not just in its extent but also in its definition. There was a time when one thought of child sex abuse narrowly in terms of physical acts committed by an adult in relation to a child. While child sex abuse of that kind continues, it is also manifest in other ways, and in the brief time available to me this evening I will look at the public policy challenge of how best to address these more novel forms of child sex abuse.
	New means of communication, principally the internet and mobile phones, play a key role. In recent years children and young people have started to use their mobile phones to take pictures of themselves or others naked and then to text those images to others or distribute them through new social media. This practice, called “sexting”, is hugely damaging. One can gain some appreciation of the problem by examining the Children’s Commissioner’s recent literature review on the subject, Basically... porn is everywhere, which is a deeply disturbing document.
	Among other things, the report highlights studies demonstrating that between 4% and 17% of young people have sent or received "sexts" or have posted self-generated images online. I have references to them in my notes. Crucially, the report makes it very plain that such images can be taken and/or disseminated as part of bullying, or their discovery may lead to bullying. This may also lead to threats or blackmail, or may be posted to or shared by paedophile chat sites. Also, according to one of my sources, Wolf, online distribution of material generated via sexting has the potential to lead to self-harm and/or suicide.
	Just because sexting and associated cyberbullying do not necessarily involve physical contact and may be committed by children on children as well as by adults on children, it does not follow that these practices, when they involve people under 18, are anything other than a new form of child sex abuse. If we are to have an adequate public policy response to child sex abuse, we must engage with sexting and associated cyberbullying. The truth is that these behavioral abuses of the otherwise wonderful potential that the internet has to offer can only be addressed through challenging and educating.
	This is one of the two central provisions of my Online Safety Bill which is currently awaiting its Second Reading in your Lordships’ House. Clause 4 places an obligation on internet service providers and mobile phone operators to make customers aware of internet and mobile safety issues, which include the online behavioural challenges of sexting and cyberbullying. Clause 5, meanwhile, places an obligation on the Secretary of State to provide parents with education materials about online safety, including sexting and cyberbullying, to help them speak to and teach their children about such challenges. I would like to know what the Government plan to do to help parents engaging with this key educational challenge, and I hope that the Minister will enlighten us when he replies.
	We then turn to another crucial issue: to what extent are we prepared to do what we can to help ensure that children do not stumble on legal but entirely inappropriate adult sexual content online? Knowing what we do about the development of the brains of children with respect to sexual images, I firmly believe that there is a real sense in which a culture that chooses not to invest appropriate resources on preventing children from accessing such material is itself guilty of a form of child sex abuse. While we may not yet have the public policy tools to provide complete safety for children online, I believe that at any given time we should do everything that it is technologically possible to do to protect children from stumbling upon such images.
	If we pass on this opportunity, we ourselves are guilty of allowing a form of abuse. That is why Clause 1 of my Bill requires internet service providers and mobile phone operators to provide service users with an internet service that is free from inappropriate adult sexual and violent content at the point of purchase but with the option for anyone to access such material, subject to their opting in and going through a verification process demonstrating that they are 18 or over.
	I warmly congratulate the Prime Minister on taking on this issue and, in particular, on his 22 July NSPCC speech in which he addressed both the availability of illegal child sex abuse images online and the current ease with which children can access legal but inappropriate adult content online. He has shown real leadership on the issue and for this I thank him. However, I gently suggest that his phrase, “Nothing is more important than this”, with which I completely agree, sits rather oddly alongside his refusal to introduce legislation in deference to the industry's desire for self-regulation. Self-regulation may sound very fine but it is worth remembering that it was tried before when seeking to engage with the great child rights challenges of the past. In 1847 any aspiration for self-regulation of the factories had to be abandoned in favour of a statute, and no one questions the wisdom of that now. I suspect that we will come, sooner or later, to the realisation that we require legislation—

Lord Ahmad of Wimbledon: I am sorry to interrupt the noble Baroness but I remind her—

Baroness Howe of Idlicote: I am just finishing. We will come to the realisation that we require legislation to address the problems that I have outlined and that in the future those looking back would be incredulous that we ever dared think otherwise.

Lord Giddens: My Lords, I, too, congratulate the noble Baroness, Lady Howarth, on securing this debate and on her effective introduction to it.
	To understand debates about child sex abuse now we absolutely have to have some historical context. I started working on this issue some 30 or so years ago now. That was a time of denial, both here and in the United States, let alone elsewhere. Cases of widespread abuse were coming to light in churches, in orphanages, in hospitals and in the family, but a veritable smokescreen was thrown up to try to block off the implications of all this. For example, people spoke of false memory syndrome, casting doubt on the testimony of many children who did at that time speak up. In a way, that is not surprising because we are dealing here with some of the most cherished institutions in our society. A substantial proportion of the cases of sexual abuse that came to light were against small boys. It is important to recognise this and not concentrate only on sexual abuse against girls.
	I used to teach at the University of California at Santa Barbara—one of the most beautiful towns you could possibly live in. The jewel in the crown in Santa Barbara was the mission, which stood on the hill above the town—a really wonderful building. In that building, it was discovered that there was a long-term history of sexual abuse on a mass scale. A local newspaper referred to those involved, who were priests and friars in the institution, as sacred monsters. Over the period 1964 to 1987, fully one-quarter of the friars regularly abused the boys in the institution.
	Noble Lords may have seen in the papers a couple of days ago that high-profile cases are even now coming to the fore in the Catholic Church in Poland involving some very high-ranking dignitaries. What we are talking about here is, as it were, the secret
	sexual history of our civilisation. We are talking about something deep-rooted, not a transient phenomenon; it has a very long history. The term “grooming”, for example, has been widely used recently. It is a fairly novel term, but I can assure noble Lords that it is a term for a very traditional practice. Grooming went on at the mission in Santa Barbara as in so many other institutions. Many questions are raised, therefore, by what has been called our Jimmy Savile moment. In some part, it is our moment of institutional discovery and the consequences will take a long time to assimilate.
	I have three brief points on which I would like the Minister, if he has time, to comment. First, I hope the Government will accept that we are in this for the long haul; that we are at the beginning of a process that will go on for a long time. Operation Yewtree, after all, found 450 people who came forward to speak out. None of them had spoken out before. This is part of a much larger hidden history; it is not an individual case in any way at all. Therefore, a long-term strategy is needed.
	Secondly, would the Minister agree that we need to focus on boys as much as girls? Boys on the whole are much more reluctant than girls to speak up, for well known reasons. Jimmy Savile’s victims included quite a number of boys under the age of 10, so it will not do to concentrate only on one sex when discussing this issue.
	Thirdly, we need to hammer home the point made by Keir Starmer, the Director of Public Prosecutions, that this is not just a problem for the CPS and the police. That is precisely because it is essentially an institutional problem—an issue, in other words, for all of those in charge of the diversity of organisations within which such practices have been carried on.

Lord Storey: My Lords, I, too, thank the noble Baroness, Lady Howarth, for facilitating this debate. I think the figures are frightening; let me remind you of them. One in 10 children experience sexual abuse before their 18th birthday. Youth are the victims of 66% of all sexual offences reported to law enforcement agencies; they are two-and-a-half times more likely to be raped than adults. Forty per cent of victims are 11 years old or younger and 9% of 10 to 17 year-olds receive a sexual request while on the internet. Of course, sexually abused children are at greater risk of psychological, emotional, social and physical problems, often lasting into adulthood.
	What are the steps that we should take? First of all, there are some simple thoughts that we should always have in our minds. We should eliminate or reduce isolated one-to-one situations in order to decrease risk. More than 80% of cases happen in isolated one-to-one situations. We should be prepared to have open conversations with children about our bodies, sex and boundaries. The best protection is our relationship with children and that is why sex education in schools is so important. We should know the signs of abuse to protect children from harm and understand how to respond to risky behaviours and suspicions or reports of abuse.
	The greatest risk to children comes not from strangers but from people we know and trust. Ninety per cent of children know their abuser; 60% are people whom the
	family trusts; 40% are abused by older or larger youths—that is, babysitters or cousins.
	In May 2012, I asked a Question about the definition of neglect of children and young persons. I just reminded myself of the reply that the Parliamentary Under-Secretary of State for Schools at the time, the noble Lord, Lord Hill, gave me:
	“The Government's vision is for a child-centred system that includes providing effective help when a problem arises at any stage in a child’s life. This is one reason why we asked Professor Munro to carry out an independent review of child protection. She identified that services are often too reactive, and we are now helping children’s services, the police and the NHS to work together and focus on early identification before problems escalate”.—[Official Report, 23/5/12; col. WA 59.]
	I am very tempted to say: tell that to, or consider it for, poor Daniel Pelka. As we remember, Daniel Pelka was starved to death and beaten for months by his serial criminal stepfather and drug addict prostitute mother—mind-bogglingly, beyond the help of onlooking teachers, health staff and social workers. There are the ghosts of Victoria Climbié and baby Peter, two other lovely kids who should be alive today. There was a boy resembling a concentration camp victim scavenging in bins and reduced to finding scraps to survive. There was another inquiry, another set of recommendations and then, sadly, we all sit back to wait for it to happen again.
	Social workers carry out a fantastic job. There has been a huge step change in schools and teachers, with child protection officers and safeguarding and child protection policies, but the answer is not constantly to have inquiries—it is actually to do something. We know what we need to do. If at any time any of the agencies suspect that something is wrong, they need to act. They need to be prepared to open the door and go into the house to see for themselves. Do we seriously believe that there were not adults around in those very serious cases who did not see a change in those particular children? No child deserves to be treated by way of sexual abuse.

Baroness Hughes of Stretford: My Lords, I, too, thank the noble Baroness, Lady Howarth, particularly for the focus that she has brought this evening on prevention. She set out clearly for us the incidence and prevalence of child sexual abuse and made a compelling case for more to be done to support prevention—something which, as she rightly said, is the weak link in current plans and, I would say, in policy and professional practice.
	Despite some very high-profile cases lately, as the noble Lord, Lord Storey, said, most children who are sexually abused are still abused within their families, although I think that the explosive influence of the internet may change that over time. Even now, child sexual abuse is not a homogenous phenomenon. There are many contexts for it, and they are all distinctive. A victim can be abused by a single relative. I have come across families in which children are passed around among relatives in a culture of abuse. An individual victim can be abused opportunistically by a stranger or by a person in trust in certain contexts—schools, churches, residential homes, music lessons and so on. Children may be targeted by men acting in pairs or gangs, abused by other young people, groomed online
	for abuse, used to make pornography and, as the noble Baroness, Lady Doocey, reminded us specifically, trafficked in from abroad for the purpose of abuse.
	The internet and social media are modern phenomena that have exponentially increased the capacity of predatory abusers to seek out and connect with children, as the noble Baroness, Lady Howe, pointed out. The case was reported earlier this week, as Members may have seen, of Anthony Marsh, a married man, and Lee Davies who, acting together, contacted more than 2,700 children right across the country. So far, from the images in their computers, police have identified only 17 victims, of whom the men admit to abusing 10, four boys being abused by both of them. They operated for at least eight years, and for the whole of that time Marsh was HIV positive. They have been charged with 69 offences, and pleaded guilty to 55.
	There are so many different forms of abuse—and they may be changing with the use of the internet—that there can be no single method of prevention. However, I believe that there are some fundamental approaches which really ought to underpin everything that we can do in terms of prevention. One is to increase the knowledge, the awareness and the resilience of children themselves. The second is to improve the ability of adults to recognise possible abuse, to be open to children disclosing it, and to be able to respond appropriately. The third is that we need a special approach to young people who abuse.
	I will make a few comments on these three points, and hope that when the Minister replies he may be able to say what the Government are doing in these areas. First, there is the issue of increasing the knowledge, awareness and resilience of children. Here I agree with the noble Lord, Lord Storey, and others who argue that there is now an unassailable case for better sex and relationship education within schools as part of a broader PSHE curriculum.
	We need to deter children from the kind of risky behaviour with mobile phones, for instance, that was illustrated by the noble Baroness, Lady Howe, who also mentioned the dangers of the internet. Education should include talking about positive relationships and avoiding exploitative or coercive ones, and respect for others. I say to the Minister that it is now urgent for the Government to update the guidance for sex and relationship education. This was last revised in 2000, well before a range of relevant legislation that has since been enacted.
	The Government could ensure that Ofsted examined the practice of schools in this area much more closely, to raise the standard of preventative education and improve consistency of practice across schools. Schools are the only universal service, and they have a crucial role to play in helping children stand up to behaviour that might turn out to be abusive, and have the confidence to tell trusted adults if this is happening.
	Secondly, I turn to improving the ability of parents and adults to recognise and respond. It is clearly essential for teachers, health workers and others, particularly parents, to know where to go to get help if they are worried. I am concerned that these kinds of programmes for parents have diminished. Could the Minister say what the Government are doing to support
	this? As my noble friend Lord Giddens said, we still see vestiges of that historic denial, as we did in some of the cases of sexual abuse of vulnerable girls by gangs of men.
	Lastly but by no means least, there is the significant proportion of abuse committed by children and young people themselves. When a young person is displaying risky behaviour of that type, potentially criminal behaviour, there is more chance of changing that behaviour. That is why prevention by developing special programmes for young people at risk of committing sexual abuse is very important indeed. There are a number of very good programmes, and I wonder what the Government are doing to support them.

Lord Taylor of Holbeach: My Lords, I conclude this debate by thanking the noble Baroness, Lady Howarth of Breckland, for securing it. I also thank the many noble Lords who have participated in the debate for their very valuable contributions. We have all been time-limited, and I am time-limited too. To the noble Baroness, Lady Hughes, I say let us see whether we can arrange a debate with a little bit more time and space to develop these arguments.
	While my response will answer some of the questions asked by noble Lords, I hope the noble Baroness will allow me to reply in the commentary on the debate to all noble Lords who have participated. I will circulate the commentary to all noble Lords who have participated. I will of course also share it with my right honourable friend Damian Green, who is the Minister heading up the national group, and with Edward Timpson, the Children’s Minister. On top of that I will try to make sure that it also goes to all members of the national group. Our speeches in the debate will therefore demonstrably be circulated to a lot of people. I hope that we will be able to benefit from that.
	As the noble Lord, Lord Giddens, said, child sexual exploitation is an abhorrent crime, no matter how or when it occurs. Child protection is an absolute priority for this Government from the top down, as the noble Baroness, Lady Howe, said. We are committed to ensuring that children receive the protection they need and deserve. This is not a quick-fix area of policy. The noble Lord, Lord Giddens, graphically displayed the ingrained problems with which Governments and society have to deal. We are committed to learning lessons from the inquiries and investigations that have concluded. That is why the Minister for Policing, Criminal Justice and Victims, Damian Green, is leading a national group to tackle sexual violence against children and vulnerable people. As I said, I will be drawing his attention to what we have said today.
	This group, as noble Lords will probably know, is made up of experts from across government, delivery agencies, inspectorates, the police and voluntary and community sectors including the NSPCC, Barnardo’s and Rape Crisis. Its work is also supported by and benefits from the input of the wider expertise of organisations such as the Lucy Faithfull Foundation, through their membership of the strategic consultative group. Perhaps I may add to the tribute made by the noble Baroness to Lady Faithfull. In this area, progress
	has frequently been made through the inspiration of outstanding individuals. This debate, if I may so, has been testimony to it. For example, it has been very helpful to have the experience of the noble Baroness, Lady Hughes, on this issue.
	Since the group was established in April 2013, it has taken lessons learnt from inquiries and police investigations into historical sexual abuse and current sexual exploitation cases, and identified nine areas for action. Progress has already been made in a number of these priority areas including prevention, policing, criminal justice and online related issues. We should all be aware that although the point of reporting may be the first time that agencies learn of incidents, the victims have often lived with the horror and impact for many years. This is why the prevention strand of the group’s work has been prioritised and accelerated. It has already seen the delivery of useful early findings on how multi-agency safeguarding approaches work. My noble friend Lord Storey is right to tell us of the role of the education system—and of schools, in particular— in this work.
	The noble Baroness, Lady Doocey, asked about human trafficking. Many of us will have been in the Speaker’s great rooms this evening for the APPG on human trafficking, which was extremely well attended. The human trafficking strategy recognises the potential for human trafficking to occur within the confines of the UK. The Government are also clear that child trafficking is an important issue to be considered within the national group. I pay tribute to the noble Baroness, Lady Doocey, for the work she is doing to deal with human trafficking by rail and in other aspects. She has been a hero on that point.
	Information sharing and multi-agency working between local services is vital if we are to protect vulnerable people. An excellent example of this new approach is MASH, the multi-agency safeguarding hub, which is a huge improvement in the practical way of protecting children. Multi-agency safeguarding hubs allow real-time conversations to take place about issues including child abuse, domestic violence victims and missing people. We are introducing significant measures to improve the court process for children, and other vulnerable victims of sexual abuse and exploitation, to ensure that all victims of sexual violence are listened to and dealt with appropriately and sensitively, and that they have sufficient confidence in the police and the criminal justice system to report such crimes.
	We have consulted on a revised Code of Practice for Victims of Crime, with a bespoke chapter setting out the services and support for child victims. This will be published this autumn, giving victims clearer entitlements from the criminal justice system and tailoring services according to individual needs. Victims under the age of 18 will be automatically entitled to an enhanced service, and we have announced pilot measures for pre-recorded, pre-trial cross-examinations of vulnerable and intimidated witnesses, including children. We are also considering options for ways to reduce the distress that some victims suffer as a result of the trial process, particularly in cases of sexual violence. This will ensure that cross-examination is not protracted and repetitive.
	As I have mentioned, tackling this issue requires a multi-agency response with co-ordination across a range of policy areas, operational partners and subject-matter
	experts. To support this, we have published this year revised statutory guidance in
	Working Together to Safeguard Children
	. However, the responsibility, as noble Lords are aware, does not rest just with government. My noble friend Lady Eaton was right to emphasise the local nature of much of this work. We have strengthened local safeguarding children’s boards so that they can hold agencies to account for safeguarding children. The Government are providing funding to the Association of Independent LSCB Chairs that plays a crucial role in supporting LSCBs to tackle child sexual exploitation.
	This is why the Government are investing £1.8 million over the next two years in four new projects trialling new ways of delivering improved support to children and young people specifically at risk of sexual exploitation. In addition, the Government have awarded funding to several other organisations for projects that will contribute to tackling child sexual exploitation in gangs and groups, including £1.2 million over three years, from April 2012 to March 2015, for 13 young people’s advocates to respond to domestic abuse, CSE and gang involvement. The Home Office has also committed £1.72 million per year to part-fund 87 independent sexual violence adviser posts.
	This Government have put rape support centres on a secure financial footing for the first time. The Ministry of Justice is providing £4 million over the next year to fund 77 rape support centres across England and Wales, helping rape and sexual assault victims get the expert support that they need. The Government have also provided funding to the NSPCC to provide the ChildLine service and the NSPCC helpline covering the four years, 2011-2015. In total, this grant is £11.2 million over the four years.
	In addition, the Government fully recognise the critical and valuable role played by the wide range of charities and the voluntary sector. The have a key role in tackling and preventing this issue. While many agencies and individuals are carrying out fantastic work in the area, we must ensure that we continue to build on and learn the lessons from the past and ensure that children and vulnerable people are getting the protection and the support that they deserve.
	I conclude by once again thanking the noble Baroness, Lady Howarth of Breckland, for securing this debate. I hope that noble Lords will consider that it has been a valuable discussion and that we will have an opportunity to return at length to this subject in the future.
	Sitting suspended.

Financial Services (Banking Reform) Bill

inancial Services (Banking Reform) Bill8th Report from the Delegated Powers Committee10th Report from the Delegated Powers Committee

Committee (2nd Day) (Continued)

Amendment 61
	 Moved by Lord Newby
	61: After Clause 12, insert the following new Clause—
	“Part 6Special Administration for operators of certain infrastructure systems
	Financial market infrastructure administration
	This Part—
	(a) provides for a procedure to be known as FMI administration, and
	(b) restricts the powers of persons other than the Bank of England in relation to the insolvency of infrastructure companies.”

Lord Newby: My Lords, these amendments establish a special administration regime that will apply to operators of recognised interbank payment systems, operators of securities settlement systems and crucial service providers to those operators.
	The establishment of this new administration regime, to be known as financial market infrastructure—FMI—administration, is the latest in a series of measures that this Government are bringing forward to ensure that the failure of a single financial institution is not allowed to put UK financial stability at risk.
	Underpinning the financial sector are a number of critical pieces of infrastructure that, if allowed to fail, could severely disrupt markets and the normal functioning of the wider economy. The need to ensure that some of these systemically important pieces of infrastructure continue to operate in times of crisis has already been addressed in legislation passed by this Government. However, there remain other pieces of systemically important market infrastructure that have not yet benefitted from statutory provision designed to ensure continuity of service in times of crisis. With that in mind, the amendments forming Part 6 have been tabled in order to ensure the continuity of service provision of recognised interbank payment systems, which facilitate or control the transfer of money between banks and building societies, and securities settlement systems, which enable the title to units of securities to be transferred electronically. These systems are integral to the efficient operation of the financial system, processing transactions worth hundreds of billions of pounds a day. As things stand, in the event that the operator of an inter-bank payment system or securities settlement system was to become insolvent, it would be likely to enter the normal administration procedure. In such cases, the administrator would be under a duty to look after the interests of the company’s creditors, without concern for implications for the wider economy. In these circumstances, the continued operation of crucial payment and settlement services could be threatened.
	Part 6 introduces a special administration regime, known as FMI administration, which prioritises continuity of critical service provision during administration. The key features of this administration are the appointment of a special administrator, who will have an overarching objective to continue critical services during administration; the Bank of England’s ability to apply to a court to place a relevant company into FMI administration with the court appointing the FMI administrator—no-one else will be able to institute insolvency proceedings against one of these firms without giving the Bank prior notice; the Bank of England’s power of direction over the FMI administrator; the availability of powers allowing for the property, rights and liabilities of the relevant company to be transferred; and restrictions on early termination of third party contracts.
	In addition to operators of relevant systems, FMI administration will also be available in respect of companies that the Treasury designates as crucial service
	providers to the operators of the relevant systems. Service providers will be designated if the Treasury is satisfied that an interruption in the provision of services would have a serious adverse effect on the effective operation of the relevant system. Insolvency rules made under the powers in Part 6 will be made in due course. These will prescribe certain procedural details relating to the conduct of FMI administration. Different rules will be made in respect of England and Wales, Scotland and Northern Ireland. Any rules made under this power that apply to England and Wales will need to be cleared by the Insolvency Rules Committee before the Lord Chancellor may proceed to make them.
	We believe that the likelihood of these powers ever being needed is extremely small. However, if an interbank payment system did get into financial difficulty, it would clearly be in the interests of financial stability that it was able to continue in operation as its financial problems were resolved. The special administration provisions in these amendments would allow this to happen, and I therefore commend them to the House.

Lord Eatwell: My Lords, I believe that these measures are valuable as an ultimate backstop, as the noble Lord has suggested. I just wonder, as I intimated earlier, whether there is some confusion in ultimate authority, as between the discussions of the payments systems regulator, and the role here, involving the Bank of England and the Treasury, given that the payments regulator will lie outwith both.

Lord Newby: My Lords, I will write to the noble Lord on that point. My officials do not believe there is such confusion in reality, but we will seek to clarify this before Report.
	Amendment 61 agreed.
	Amendments 62 to 78
	 Moved by Lord Newby
	62: After Clause 12, insert the following new Clause—
	“Interpretation: infrastructure companies
	(1) In this Part “infrastructure company” has the meaning given by this section.
	(2) “Infrastructure company” means a company which is—
	(a) the operator of a recognised inter-bank payment system, other than an operator excluded by subsection (3),
	(b) approved under regulations under section 785 of the Companies Act 2006 (provision enabling procedures for evidencing and transferring title) as the operator of a securities settlement system, or
	(c) a company designated by the Treasury under subsection (4).
	(3) But a company is not an infrastructure company if it is a recognised central counterparty, as defined by section 285 of FSMA 2000.
	(4) The Treasury may by order designate a company for the purposes of subsection (2)(c) if—
	(a) the company provides services to a person falling within subsection (2)(a) or (b), and
	(b) the Treasury are satisfied that an interruption in the provision of those services would have a serious adverse effect on the effective operation of the recognised inter-bank payment system or securities settlement system in question.
	(5) An order under subsection (4) must specify the recognised inter-bank payment system or securities settlement system in connection with which the company is designated.
	(6) Before designating a company under subsection (4), the Treasury must consult—
	(a) the company to be designated,
	(b) the person within subsection (2)(a) or (b) to whom the company provides services,
	(c) the Bank of England,
	(d) if the company is a PRA-authorised person, the PRA and the FCA, and
	(e) if the company is an authorised person other than a PRA-authorised person, the FCA.”
	63: After Clause 12, insert the following new Clause—
	“Interpretation: other expressions
	(1) In this Part—
	“company” means a company registered under the Companies Act 2006;
	“operator”, in relation to a recognised inter-bank payment system, is to be read in accordance with section 183 of the Banking Act 2009;
	“recognised inter-bank payment system” means an inter-bank payment system, as defined by section 182 of the Banking Act 2009, in respect of which a recognition order under section 184 of that Act is in force;
	“the relevant system” means—
	(a) in relation to an infrastructure company falling within subsection (2)(a) of section (Interpretation: infrastructure companies), the recognised inter-bank payment system,
	(b) in relation to an infrastructure company falling within subsection (2)(b) of that section, the securities settlement system,
	(c) in relation to a company designated under subsection (4) of that section, the recognised inter-bank payment system or securities settlement system falling within paragraph (b) of that subsection;
	“securities settlement system” means a computer-based system, and procedures, which enable title to units of a security to be evidenced and transferred without a written instrument, and which facilitate supplementary and incidental matters.
	(2) Expressions used in the definition of “securities settlement system” in subsection (1) are to be read in accordance with section 783 of the Companies Act 2006.”
	64: After Clause 12, insert the following new Clause—
	“FMI administration orders
	(1) In this Part “FMI administration order” means an order which—
	(a) is made by the court in relation to an infrastructure company, and
	(b) directs that, while the order is in force, the affairs, business and property of the company are to be managed by a person appointed by the court.
	(2) A person appointed as mentioned in subsection (1)(b) is referred to in this Part as an FMI administrator.
	(3) The FMI administrator of a company must manage its affairs, business and property, and exercise and perform the FMI administrator’s functions, so as to achieve the objective in section (Objective of FMI administration).”
	65: After Clause 12, insert the following new Clause—
	“Objective of FMI administration
	(1) Where an FMI administrator is appointed in relation to the operator of a recognised inter-bank payment system or a securities settlement system, the objective of the FMI administration is—
	(a) to ensure that the system is and continues to be maintained and operated as an efficient and effective system,
	(b) where the operator of the system is also a clearing house falling within section 285(1)(b)(ii) of FSMA 2000 (recognised clearing house that is not a recognised central counterparty), to ensure that the protected activities continue to be carried on, and
	(c) to ensure by one or both of the specified means that it becomes unnecessary for the FMI administration order to remain in force for that purpose or those purposes.
	(2) Where an FMI administrator is appointed in relation to a company designated under subsection (4) of section (Interpretation: infrastructure companies), the objective of the FMI administration is—
	(a) to ensure that services falling within that subsection continue to be provided, and
	(b) to ensure by one or both of the specified means that it becomes unnecessary for the FMI administration order to remain in force for that purpose.
	(3) The protected activities referred to in subsection (1)(b) are such activities as the Bank of England may from time to time direct, which must be—
	(a) regulated activities falling within section 285(3)(a) or (b) of FSMA 2000, or
	(b) related activities which are necessary for the efficient carrying on of any of those regulated activities.
	(4) The specified means are—
	(a) the rescue as a going concern of the company subject to the FMI administration order, and
	(b) transfers falling within subsection (5).
	(5) A transfer falls within this subsection if it is a transfer as a going concern—
	(a) to another company, or
	(b) as respects different parts of the undertaking of the company subject to the FMI administration order, to two or more different companies,
	of so much of that undertaking as it is appropriate to transfer for the purpose of achieving the objective of the FMI administration.
	(a)The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).
	(b)Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act.
	(c)Ignore sub-para. (3)(b).
	(a)Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings.
	(b)In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(a)Ignore sub-paras. (1) and (3).
	(b)The Bank of England may apply to the court for the variation or revocation of any directions given by the court.
	()“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing
	the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.”
	()“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.
	()(2) The persons who may apply to the court under sub-paragraph (1) are—
	()(a) the Bank of England;
	()(b) with the consent of the Bank, the FMI administrator.”
	(a)Para. 91(1) applies as if the only person who could make an application were the Bank of England.
	(b)Ignore para. 91(2).
	(a)in accordance with directions of the Bank of England, and
	(b)if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act.
	(a)In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act.
	(b)Ignore subsections (2A)(a) and (3) to (3C).
	(6) The means by which transfers falling within subsection (5) may be effected include, in particular—
	(a) a transfer of the undertaking of the company subject to the FMI administration order, or of part of its undertaking, to a wholly-owned subsidiary of that company, and
	(b) the transfer to a company of securities of a wholly-owned subsidiary to which there has been a transfer falling within paragraph (a).
	(7) The objective of the FMI administration may be achieved by transfers falling within subsection (5) only to the extent that—
	(a) the rescue as a going concern of the company subject to the FMI administration order is not reasonably practicable or is not reasonably practicable without such transfers,
	(b) the rescue of that company as a going concern will not achieve that objective or will not do so without such transfers, or
	(c) such transfers would produce a result for the company’s creditors as a whole that is better than the result that would be produced without them.”
	66: After Clause 12, insert the following new Clause—
	“Application for FMI administration order
	(1) An application for an FMI administration order may be made to the court by the Bank of England.
	(2) An application must nominate a person to be appointed as the FMI administrator.
	(3) The infrastructure company must be given notice of an application, in accordance with rules under section 411 of the 1986 Act (as applied in relation to FMI administration).”
	67: After Clause 12, insert the following new Clause—
	“Powers of court
	(1) The court may make an FMI administration order in relation to an infrastructure company if satisfied—
	(a) that the company is unable to pay its debts,
	(b) that the company is likely to be unable to pay its debts, or
	(c) that, on a petition presented by the Secretary of State under section 124A of the 1986 Act (petition for winding up on grounds of public interest), it would be just and equitable (disregarding the objective of the FMI administration) to wind up the company.
	(2) The court may not make an FMI administration order on the ground set out in subsection (1)(c) unless the Secretary of State has certified to the court that the case is one in which the Secretary of State considers (disregarding the objective of the FMI administration) that it would be appropriate to petition under section 124A of the 1986 Act.
	(3) On an application for an FMI administration order, the court may—
	(a) grant the application;
	(b) dismiss the application;
	(c) adjourn the application (generally or to a specified date);
	(d) make an interim order;
	(e) treat the application as a winding-up petition and make any order which the court could make under section 125 of the 1986 Act;
	(f) make any other order which the court thinks appropriate.
	(4) An interim order under subsection (3)(d) may, in particular—
	(a) restrict the exercise of a power of the company or of its directors;
	(b) make provision conferring a discretion on the court or on a person qualified to act as an insolvency practitioner in relation to the company.
	(5) For the purposes of this section a company is unable to pay its debts if it is treated as being so unable under section 123 of the 1986 Act (definition of inability to pay debts).”
	68: After Clause 12, insert the following new Clause—
	“FMI administrators
	(1) The FMI administrator of a company—
	(a) is an officer of the court, and
	(b) in exercising and performing powers and duties in relation to the company, is the company’s agent.
	(2) The management by the FMI administrator of a company of any of its affairs, business or property must be carried out for the purpose of achieving the objective of the FMI administration as quickly and efficiently as is reasonably practicable.
	(3) The FMI administrator of a company must exercise and perform powers and duties in the way which, so far as it is consistent with the objective of the FMI administration to do so, best protects—
	(a) the interests of the company’s creditors as a whole, and
	(b) subject to those interests, the interests of the company’s members as a whole.”
	69: After Clause 12, insert the following new Clause—
	“Continuity of supply
	(1) This section applies where, before the commencement of FMI administration, the infrastructure company had entered into arrangements with a supplier for the provision of a supply to the infrastructure company.
	(2) After the commencement of FMI administration, the supplier—
	(a) must not terminate a supply unless—
	(i) any charges in respect of the supply which relate to a supply given after the commencement of FMI administration remain unpaid for more than 28 days,
	(ii) the FMI administrator consents to the termination, or
	(iii) the supplier has the permission of the court, which may be given if the supplier can show that the continued provision of the supply would cause the supplier to suffer hardship,
	(b) must not make it a condition of a supply that any charges in respect of the supply which relate to a supply given before the commencement of FMI administration are paid, and
	(c) must not do anything which has the effect of making it a condition of the giving of a supply that any charges within paragraph (b) are paid.
	(3) Where, before the commencement of FMI administration, a contractual right to terminate a supply has arisen but has not been exercised, then, for the purposes of this section, the commencement of FMI administration causes that right to lapse and the supply is only to be terminated if a ground in subsection (2)(a) applies.
	(4) Any provision in a contract between the infrastructure company and the supplier that purports to terminate the agreement if any action is taken to put the infrastructure company in FMI administration is void.
	(5) Any expenses incurred by the infrastructure company on the provision of a supply after the commencement of FMI administration are to be treated as necessary disbursements in the course of the FMI administration.
	(6) In this section—
	“commencement of FMI administration” means the making of the FMI administration order;
	“supplier” means the person controlling the provision of a supply to the infrastructure company, and includes a company that is a group undertaking (as defined by section 1161(5) of the Companies Act 2006) in respect of the infrastructure company;
	“supply” means a supply of any of the following—
	(a) computer hardware or software used by the infrastructure company in connection with the operation of the relevant system;
	(b) financial data;
	(c) infrastructure permitting electronic communication services;
	(d) data processing;
	(e) access to secure data networks used by the infrastructure company in connection with the operation of the relevant system.”
	70: After Clause 12, insert the following new Clause—
	“Power to direct FMI administrator
	(1) If the Bank of England considers it necessary to do so for the purpose of achieving the objective of an FMI administration, the Bank may direct the FMI administrator to take, or refrain from taking, specified action.
	(2) In deciding whether to give a direction under this section, the Bank of England must have regard to the public interest in—
	(a) the protection and enhancement of the stability of the financial system of the United Kingdom, and
	(b) the maintenance of public confidence in that system.
	(3) A direction under this section must not be incompatible with a direction of the court that is in force under Schedule B1 to the 1986 Act.
	(4) The Bank of England must, within a reasonable time of giving the direction, give the FMI administrator a statement of its reasons for giving the direction.
	(5) A person listed in subsection (6) has immunity from liability in damages in respect of action or inaction in accordance with a direction under this section.
	(6) Those persons are—
	(a) the FMI administrator;
	(b) the company in FMI administration;
	(c) the officers or staff of the company.
	(7) Immunity conferred by this section does not extend to action or inaction—
	(a) in bad faith, or
	(b) in contravention of section 6(1) of the Human Rights Act 1998.
	(8) This section does not limit the powers conferred on the Bank of England by section 191 of the Banking Act 2009 (directions) in relation to a recognised inter-bank payment system.”
	71: After Clause 12, insert the following new Clause—
	“Conduct of administration, transfer schemes etc.
	(1) Schedule (Conduct of FMI administration) (which applies the provisions of Schedule B1 to the 1986 Act about ordinary administration orders and certain other enactments to FMI administration orders) has effect.
	(2) Schedule (Financial market infrastructure transfer schemes) (which makes provision for transfer schemes to achieve the objective of an FMI administration) has effect.
	(3) The power to make rules conferred by section 411(1B) of the 1986 Act (rules relating to bank administration) is to apply for the purpose of giving effect to this Part as it applies for the purposes of giving effect to Part 3 of the Banking Act 2009 (and, accordingly, as if the reference in section 411(1B) to that Part included a reference to this Part).”
	72: After Clause 12, insert the following new Clause—
	“Restriction on winding-up orders and voluntary winding up
	(1) A petition by a person other than the Bank of England for a winding up order in respect of an infrastructure company may not be determined unless—
	(a) the petitioner has notified the Bank of England that the petition has been presented, and
	(b) the period of 14 days beginning with the day on which the notice is received by the Bank has ended.
	(2) A resolution for the voluntary winding up of an infrastructure company may not be made unless—
	(a) the infrastructure company has applied to the court under this section,
	(b) the company has notified the Bank of England that the application has been made, and
	(c) after the end of the period of 14 days beginning with the day on which the notice is received by the Bank, the court gives permission for the resolution to be made.”
	73: After Clause 12, insert the following new Clause—
	“Restriction on making of ordinary administration orders
	(1) This section applies where an ordinary administration application is made in relation to an infrastructure company by a person other than the Bank of England.
	(2) The court must dismiss the application if—
	(a) an FMI administration order is in force in relation to the company, or
	(b) an FMI administration order has been made in relation to the company but is not yet in force.
	(3) Where subsection (2) does not apply, the court, on hearing the application, must not exercise its powers under paragraph 13 of Schedule B1 to the 1986 Act (other than its power of adjournment) unless—
	(a) the applicant has notified the Bank of England that the application has been made, and
	(b) the period of 14 days beginning with the day on which the notice is received by the Bank has ended.
	(4) On the making of an FMI administration order in relation to an infrastructure company, the court must dismiss any ordinary administration application made in relation to the company which is outstanding.
	(5) “Ordinary administration application” means an application under paragraph 12 of Schedule B1 to the 1986 Act.”
	74: After Clause 12, insert the following new Clause—
	“Restriction on enforcement of security
	A person may not take any step to enforce a security over property of an infrastructure company unless—
	(a) notice of the intention to do so has been given to the Bank of England, and
	(b) the period of 14 days beginning with the day on which the notice was received by the Bank has ended.”
	75: After Clause 12, insert the following new Clause—
	“Loans
	(1) This section applies where an FMI administration order has been made in relation to an infrastructure company.
	(2) The Treasury may, out of money provided by Parliament, make loans to the company for achieving the objective in section (Objective of FMI administration).
	(3) A loan under this section may be made on such terms as the Treasury think fit.
	(4) The Treasury must pay into the Consolidated Fund sums received by them as a result of this section.”
	76: After Clause 12, insert the following new Clause—
	“Indemnities
	(1) This section applies where an FMI administration order has been made in relation to an infrastructure company.
	(2) The Treasury may agree to indemnify persons in respect of one or both of the following—
	(a) liabilities incurred in connection with the exercise of powers and duties by the FMI administrator;
	(b) loss or damage sustained in that connection.
	(3) The agreement may be made in whatever manner, and on whatever terms, the Treasury think fit.
	(4) As soon as practicable after agreeing to indemnify persons under this section, the Treasury must lay before Parliament a statement of the agreement.
	(5) If sums are paid by the Treasury in consequence of an indemnity agreed to under this section, the infrastructure company must pay the Treasury—
	(a) such amounts in or towards the repayment to them of those sums as the Treasury may direct, and
	(b) interest, at such rates as they may direct, on amounts outstanding under this subsection.
	(6) Subsection (5) does not apply in the case of a sum paid by the Treasury for indemnifying a person in respect of a liability to the infrastructure company.
	(7) Where a sum has been paid out by the Treasury in consequence of an indemnity agreed to under this section, the Treasury must lay a statement relating to that sum before Parliament—
	(a) as soon as practicable after the end of the financial year in which that sum is paid out, and?
	(b) (except where subsection (5) does not apply in the case of the sum) as soon as practicable after the end of each subsequent relevant financial year.
	(8) In relation to a sum paid out in consequence of an indemnity, a financial year is a relevant financial year for the purposes of subsection (7) unless—
	(a) before the beginning of that year, the whole of that sum has been repaid to the Treasury under subsection (5), and
	(b) the infrastructure company is not at any time during that year subject to liability to pay interest on amounts that became due under that subsection in respect of that sum.
	(9) The power of the Treasury to agree to indemnify persons—
	(a) is confined to a power to agree to indemnify persons in respect of liabilities, loss and damage incurred or sustained by them as relevant persons, but
	(b) includes power to agree to indemnify persons (whether or not they are identified or identifiable at the time of the agreement) who subsequently become relevant persons.
	(10) For the purposes of this section each of the following is a relevant person—
	(a) the FMI administrator;
	(b) an employee of the FMI administrator;
	(c) a member or employee of a firm of which the FMI administrator is a member;
	(d) a member or employee of a firm of which the FMI administrator is an employee;
	(e) a member or employee of a firm of which the FMI administrator was an employee or member at a time when the order was in force;
	(f) a body corporate which is the employer of the FMI administrator;
	(g) an officer, employee or member of such a body corporate.
	(11) For the purposes of subsection (10)—
	(a) the references to the FMI administrator are to be read, where two or more persons are appointed to act as the FMI administrator, as references to any one or more of them, and
	(b) the references to a firm of which a person was a member or employee at a particular time include references to a firm which holds itself out to be the successor of a firm of which the person was a member or employee at that time.
	(12) The Treasury must pay into the Consolidated Fund sums received by them as a result of subsection (5).”
	77: After Clause 12, insert the following new Clause—
	“Interpretation: general
	(1) In this Part—
	“the 1986 Act” means the Insolvency Act 1986;
	“business”, “member”, “property” and “security” have the same meaning as in the 1986 Act;
	“company” has the meaning given by section (Interpretation: other expressions);
	“the court” means—
	(a) in England and Wales and Northern Ireland, the High Court;
	(b) in Scotland, the Court of Session;
	“FMI administration order” and “FMI administrator” are to be read in accordance with section (FMI administration orders);
	“infrastructure company” has the meaning given by section (Interpretation: infrastructure companies);
	“operator”, in relation to a recognised inter-bank payment system, has the meaning given by section (Interpretation: other expressions);
	“recognised inter-bank payment system” has the meaning given by section (Interpretation: other expressions);
	“regulated activity” has the same meaning as in FSMA 2000;
	“the relevant system” has the meaning given by section (Interpretation: other expressions);
	“securities settlement system” has the meaning given by section (Interpretation: other expressions).
	(2) In this Part references to the FMI administrator of a company include a person appointed under paragraph 91 or 103 of Schedule B1 to the 1986 Act, as applied by Schedule (Conduct of FMI administration) to this Act, to be the FMI administrator of a company.
	(3) In this Part references to a person qualified to act as an insolvency practitioner in relation to a company are to be read in accordance with Part 13 of the 1986 Act, but as if references in that Part to a company included a company registered under the Companies Act 2006 in Northern Ireland.”
	78: After Clause 12, insert the following new Clause—
	“Northern Ireland
	(1) This section makes provision about this Part in its application to Northern Ireland.
	(2) Any reference to any provision of the 1986 Act is to have effect as a reference to the corresponding provision of the Insolvency (Northern Ireland) Order 1989.
	(3) Section (Interpretation: general)(3) is to have effect as if the reference to Northern Ireland were a reference to England and Wales or Scotland.”
	Amendments 62 to 78 agreed.
	Amendment 79
	 Moved by Lord Newby
	79: Before Clause 13, insert the following new Clause—
	“Part 7Miscellaneous
	Functions of FCA under competition legislation
	Schedule (Functions of FCA under competition legislation) (which contains provision conferring on the FCA functions under competition legislation) has effect.”

Lord Newby: My Lords, the Government want to see a competitive banking sector that delivers good outcomes for consumers and are taking steps to make that happen. Much has happened already.
	We worked with the banking industry to secure from it a new seven-day current account switching service. This service, which launched last month, has made it easier, simpler, safer and faster to switch accounts, and will help to stimulate competition between providers. We also asked the regulators to undertake a review of barriers to entry and expansion in the banking sector. The review, published in March, introduced a range of changes to capital and liquidity requirements and to the authorisations process to make it easier for new banks to enter the market and for smaller banks to compete.
	In addition to this, as noble Lords will be aware, we are introducing a ring-fence to remove the competitive advantage that big banks have received, we are creating a new independent payments regulator, and we have already put competition at the centre of the Financial Conduct Authority’s responsibilities by making competition one of its three objectives and giving it a separate competition duty.
	However, we believe that more can be done. In addition to giving the PRA a secondary competition objective, we will provide the FCA with new competition powers. These new powers include Competition Act 1998 enforcement powers that are used to address restrictive practices which are engaged in by companies operating in the UK that distort, restrict or prevent competition—for example, ordering that offending agreements or conduct be stopped. They also include power under the Enterprise Act 2002 to carry out market studies and make references to the Competition and Markets Authority for a decision on whether action should be taken.
	The FCA wrote to the Chancellor to request those powers. Since being given a competition objective last year, the FCA has worked hard to increase its technical, legal and economic skills and expertise on competition, building its capacity to identify and address competition issues in the financial services markets. The Government are therefore confident that such powers will strengthen the FCA’s ability to ensure competitive banking markets that deliver good consumer outcomes. These changes, which bring the FCA in line with other sector regulators, will enhance the credibility of the FCA and make it easier for it to persuade firms to alter their behaviour voluntarily.
	Finally, the changes will enable the FCA to become a member of the European Competition Network, leaving it much better placed to engage with regulatory issues at a European level. In short, giving the FCA these powers is another step taken by this Government that is good for competition. I beg to move.

Lord Eatwell: My Lords, I am grateful to the Minister for introducing these amendments. However, can we reflect a little on the rush towards competition? A competitive system, if it is working effectively, is likely to result in the elimination of institutions from time to time, a process that was famously described as “creative destruction”. That sort of process can be seen quite clearly in countries that have large numbers of relatively small banks. Banks fail regularly in the United States—it is quite a common process. The process is, of course, managed effectively because these banks are relatively small. Has some thought been given to the relationship between the size of banking institutions in Britain and the effectiveness of competition? If competition were truly enhanced, one bank managed to eliminate another and both were relatively large, that could be extremely disruptive. This is not to argue against a competitive process but simply to say that it should not be regarded as an exclusive guideline with respect to what are desirable policies. Has the FPC been consulted on these clauses, and what is its view?

Lord Phillips of Sudbury: My Lords, there is an assumption that competition is essentially and necessarily good and that more competition is better. We have had manifest evidence in the past six years in the City—and indeed much longer than that— that there is a point at which competition turns in on itself. Indeed, the values of out-and-out aggressive competition are inimical to the values of integrity and honesty. I want to strike a note of caution, because this word is overdone in terms of its necessary public benefit.

Lord Newby: My Lords, we spent the first part of the afternoon talking about how we get more diversity and competition into the sector. Obviously there is a danger that this can go too far. It is important, however, to realise what these powers do. There are two principal powers. First, Competition Act enforcement powers deal with restrictive practices. Most people would agree that, almost by definition, restrictive practices are not a good thing. The second power is the ability to carry out market studies and make references to the Competition and Markets Authority for a decision on whether action should be taken. Earlier we were discussing the need for the Competition and Markets Authority potentially to do just that. These are not powers that are going to force the FCA to put competition at all costs, at any price, ahead of everything else. They are relatively limited and I think we will find that they are beneficial.
	Amendment 79 agreed.
	Amendment 80
	 Moved by Lord Newby
	80: Before Clause 13, insert the following new Clause—
	“Competition as a secondary objective of the PRA
	(1) For section 2H of FSMA 2000 substitute—
	“2H Secondary competition objective and duty to have regard to regulatory principles
	(1) When discharging its general functions in a way that advances its objectives (see section 2F), the PRA must so far as is reasonably possible act in a way which, as a secondary objective, facilitates effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities.
	(2) In discharging its general functions, the PRA must also have regard to the regulatory principles in section 3B.”
	(2) In section 3B (regulatory principles to be applied by both regulators), in subsection (1), for “2H(1)(a)” substitute “2H(2)”.
	(3) In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority)—
	(a) in paragraph 19 (annual report), in sub-paragraph (1)—
	(i) after paragraph (b) insert—
	“(ba) how it has complied with section 2H(1),”, and
	(ii) in paragraph (c), omit the words from “and of” onwards, and
	(b) in paragraph 20 (consultation about annual report), in sub-paragraph (1)(c), for the words from “and the PRA” onwards substitute “and the PRA has facilitated effective competition in accordance with section 2H and has considered the regulatory principles in section 3B”.”

Lord Newby: My Lords, this group of amendments proposes changes to the statutory objectives of the PRA and FCA, following the recommendations of the PCBS. The Government recognise the importance of getting the objectives of the regulators right. They have carefully considered the PCBS recommendations. We agree with the PCBS on the need for competition in banking and have made changes to the PRA’s objectives to reflect the important role it can play in this regard. We did not agree, however, with the conclusion to drop the FCA’s strategic objective and so I will start by explaining that.
	During the progress through Parliament of the previous Financial Services Bill we listened to concerns expressed as part of the consultation process and made quite substantial changes to the FCA’s objectives as a result. On the strategic objective, the Government took note of calls by the ICB and others that the objective proposed in the draft Bill which was,
	“protecting and enhancing confidence in the UK’s financial system”,
	needed to be changed. So the FCA was given the strategic objective of,
	“ensuring that the relevant markets function well”.
	This change has been broadly welcomed by the ICB and by consumer and industry stakeholders alike.
	Of course, the FCA is now up and running and the strategic objective does what it was meant to do by acting as a high level mission statement that brings together the diverse aspects of the FCA’s work in to a single focus. We have considered the arguments that the strategic objective makes the FCA’s remit too complex and risks diverting the FCA from its operational objective.
	The three operational objectives of consumer protection, effective competition and market integrity are the matters which the FCA must seek to advance, and in doing so it must bear it in mind that ultimately this should be done in a way that ensures that markets function well, rather than being damaged or undermined. This seems straightforward and there are no reports of the strategic objective causing confusion or problems in practice.
	There is also a concern, previously raised by the Treasury Select Committee, that because the FCA’s actions have to be compatible with the strategic objective, this objective can trump the other objectives. The structural requirement to pay heed to the strategic objective would only really create a problem if the content of the strategic objective were in conflict with the operational objective. However, the strategic objective of ensuring markets function well reflects the values in the operational objectives and does not undermine them. That is quite deliberate. So the Government do not agree that the FCA’s strategic objective creates a genuine problem.
	It is absolutely appropriate that the mission statement of the FCA should be enshrined in statute. And we agree with the ICB and others that it is equally important that the FCA has an overarching aim of making markets work well. So, on balance, we propose that the FCA’s strategic objective should not be removed.
	I turn to the second amendment. Strong competition in financial markets is essential for getting good outcomes for consumers. One impact of the financial crisis has been an increase in concentration in core banking markets to levels where they are almost certainly harming competition. The Government are doing a lot to address this. The account switching service, the payment systems regulator and the existing regulators have a role to pay in ensuring a competitive banking market. That is why we have given the FCA a competition objective and duty, and are giving it strong competition powers so that it has the right tools to get the job done.
	The PRA’s main responsibility is towards a safe and stable financial sector, and this is right; but prudential regulation, while vital, can run the risk of securing the position of dominant incumbents in the market, deterring new entrants, and hampering innovation. Therefore, it is crucial that the PRA gives close consideration to competition when going about its duties. We believe that the PRA can take a more active role in facilitating competition in banking markets than under the current requirement to have regard to adverse effects on competition. This would build on the important changes made to capital and liquidity requirements and to the authorisation process as a result of the barriers to entry and expansion review in March this year. The Parliamentary Commission on Banking Standards was also of this view; it suggested the PRA be given a secondary competition objective, and the Government have accepted this recommendation.
	I therefore welcome the intention behind the amendment tabled by noble Lords, but I regret that I am unable to accept the amendment as drafted, preferring instead the amendment which stands in my name. I suspect that this will come as no surprise to the noble Lord. However, I assure him that the objective behind the two amendments is a shared one. The noble Lord’s amendment is intended to make the competition objective subject to safety and soundness, but I am not convinced that it has this effect in all contexts, and it does not make competition subordinate to policyholder protection when the insurance objective is in play.
	There are various functions of the PRA that are exercisable for the purposes of advancing any of its objectives. By including competition in the definition of objectives in Section 2F, the PRA would be able, for
	example, to impose a requirement on a firm under Section 55M of FSMA solely for competition reasons, and it might be seen as required to do so. That is not, I think, what the PCBS intended by its recommendation for a secondary objective. To require the PRA to create rules and codes solely to advance competition, as I think the noble Lord’s amendment does, would mean the PRA becoming a competition regulator and would risk distracting it from its primary role as a prudential regulator, which is to ensure the safety and soundness of firms.
	The Government amendment ensures that the PRA, in the exercise of its general functions such as making rules, must facilitate effective competition while not compromising its vital role in ensuring the safety and soundness of firms. The PRA will remain the watchdog for stability. It requires the PRA to facilitate effective competition, while maintaining the integrity of the two regulators’ clearly defined roles. Our expectation is that this secondary objective will see the PRA staffing up with greater competition knowledge and expertise and embedding a pro-competition mentality throughout the organisation. The PRA will need to ensure that competition will always be a fundamental consideration when making new rules, or determining its policies and procedures, and the PRA will need to use this expertise to keep its prudential rules and regulations under review to see whether changes can be made to provide a better environment for competition.
	Finally, the PRA will need to work with the FCA, which has a strong focus on competition, to ensure a cohesive strategy for competition in financial services. I beg to move.

Lord Turnbull: I speak to Amendments 89 and 90 in my name. A recurrent theme in the reforms to which we have come back several times this afternoon and this evening has been to increase competition in the banking system. This should engage not just the banks but their regulators too. We tabled these two amendments, Amendment 89 relating to the FCA and Amendment 90 relating to the PRA.
	The proposal for the PRA is to add an additional objective to promote competition in a way that is as far as possible consistent with its main duty of providing financial stability. The difference between the amendment tabled by the Government and my amendment is sufficiently small that I think we can accept the measure as taking us forward on that front. However, the parliamentary commission also believed that a change was needed to the architecture of the FCA’s objectives. I wish to put the other side of the case. A fear which many in the financial world share is that the FCA will give too much emphasis to bringing about change through enforcement, will wait until something goes wrong and then intervene heavily. However, the FCA, when properly directed, can be a very powerful force for improving competition.
	As the Minister has set out, the present architecture has the overall strategic objective of ensuring that relevant markets function well, and has three operational objectives below that: namely, the appropriate degree of protection for consumers; enhancing the integrity of the UK financial system; and promoting competition
	in the interests of consumers. We queried whether the strategic objective did anything or even whether it could be unhelpful and could be used to trump or confuse the clarity of the operational objectives. Our preferred solution was to drop the strategic objective and promote the other three to primary objectives by deleting the word “operational”, thus ensuring that the competition objective comes into the front rank along with the other two. I am rather surprised that the Government have not supported this, particularly as they accepted the pro-competition logic in the PRA case. I was not convinced by the Government’s response with regard to providing a mission statement. My riposte to that is that the chief executive of the FCA thought the strategic objective,
	“added little or nothing to the three operational objectives”.
	He continued:
	“You could argue that promoting effective competition in the interest of consumers and the market, enhancing the integrity of the system and ensuring an appropriate degree of protection encompass everything that is in the phrase ‘ensuring markets work well’”.
	Therefore, if you can achieve something in fewer words and with fewer objectives, and the other one is largely redundant, I would dispose of it.
	In my view the aspect of FCA culture that most people feel needs to be bolstered is competition. The current architecture is weaker in that respect than the proposed amendment. We have heard the opposing view from the Minister, but that is the logic behind the position which the commission took.

Lord Eatwell: My Lords, I remember discussing this at length during the passage of the previous Financial Services Bill. At that time, I commented that one could often detect whether a proposition made any sense by proposing a negative outcome. If we suppose that the duty is to make the markets work badly, that does not make any sense at all. Therefore, it seems to me that the strategic objective is entirely redundant and serves no useful purpose. Indeed, the idea of changing what were previously operational objectives into prime objectives places competition at that prime level and achieves the objectives which the Government themselves have argued are necessary. For some reason, this issue was never satisfactorily explained previously and has not been satisfactorily explained now. We should apply Occam’s razor and take it out.

Lord Newby: My Lords, I am sorry that the noble Lord does not think that the matter has been satisfactorily explained. All I can say is that it has been explained and was debated at great length when we took the Financial Services Bill through the House. Martin Wheatley made it clear that the operational objectives are the key drivers for the FCA’s actions. After taking legal advice, the FCA has subsequently written and confirmed that it is happy with the strategic objective. On that basis, we are happy that the FCA is happy and wish to retain it.
	Amendment 80 agreed.
	Amendment 81
	 Moved by Lord Newby
	81: Before Clause 13, insert the following new Clause—
	“Power of FCA and PRA to make rules applying to parent undertakings
	(1) After section 192J of FSMA 2000 insert—
	“Rules applying to parent undertakings of ring-fenced bodies
	192JA Rules applying to parent undertakings of ring-fenced bodies
	(1) The appropriate regulator may make such rules applying to bodies corporate falling within subsection (2) as appear to the regulator to be necessary or expedient for the group ring-fencing purposes.
	(2) A body corporate falls within this subsection if—
	(a) it is incorporated in the United Kingdom or has a place of business in the United Kingdom,
	(b) it is a parent undertaking of a ring-fenced body, and
	(c) it is not itself an authorised person.
	(3) The “group ring-fencing purposes” are the purposes set out in section 142H(4).
	(4) “The appropriate regulator” means—
	(a) in relation to the parent undertaking of a ring-fenced body that is a PRA-authorised person, the PRA;
	(b) in any other case, the FCA.
	Rules requiring parent undertakings to facilitate resolution
	192JB Rules requiring parent undertakings to facilitate resolution
	(1) The appropriate regulator may make rules requiring a qualifying parent undertaking to make arrangements that would in the opinion of the regulator allow or facilitate the exercise of the resolution powers in relation to the qualifying parent undertaking or any of its subsidiary undertakings in the event of a situation arising where all or part of the business of the parent undertaking or the subsidiary undertaking encounters or is likely to encounter financial difficulties.
	(2) The “resolution powers” are—
	(a) the powers conferred on the Treasury and the Bank of England by or under Parts 1 to 3 of the Banking Act 2009, and
	(b) any similar powers exercisable by an authority outside the United Kingdom.
	(3) The arrangements that may be required include arrangements relating to—
	(a) the issue of debt instruments by the parent undertaking;
	(b) the provision to a subsidiary undertaking (“S”) or a transferee by the parent undertaking, or by any other subsidiary undertaking of the parent undertaking, of such services and facilities as would be required to enable S or the transferee to operate the business, or part of the business, effectively.
	(4) In subsection (3)(b) “transferee” means a person to whom all or part of the business of the parent undertaking or the subsidiary undertaking could be transferred as a result of the exercise of the resolution powers.
	(5) “Debt instrument” has the same meaning as in section 142Y.
	(6) “The appropriate regulator” means—
	(a) where the subsidiary undertakings of the qualifying parent undertaking include a ring-fenced body that is a PRA-authorised person, the PRA;
	(b) where the subsidiary undertakings of the qualifying parent undertaking include one or more PRA-authorised persons but do not include any authorised person that is not a PRA-authorised person, the PRA;
	(c) where the subsidiary undertakings of the qualifying parent undertaking do not include any PRA-authorised person, the FCA;
	(d) in any other case, the PRA or the FCA.”
	(2) In section 192K of FSMA 2000 (power to impose penalty or issue censure)—
	(a) in subsection (1), after “section 192J” insert “or 192JB”, and
	(b) after that subsection insert—
	“(1A) This section also applies if a regulator is satisfied that a person (“P”) who is or has been a parent undertaking of a ring-fenced body has contravened a provision of rules made by that regulator under section 192JA.””
	Amendment 81 agreed.
	Clause 13 agreed.
	Clause 14: Amendments of section 429 of FSMA 2000
	Amendment 82
	 Moved by Lord Newby
	82: Clause 14, page 27, line 11, at end insert “and
	(b) after “213(1A),” insert “234I(2),”.”
	Amendment 82 agreed.
	Clause 14, as amended, agreed.
	Amendment 83
	 Moved by Lord Turnbull
	83: Before Clause 15, insert the following new Clause—
	“Court of directors to become board of directors
	(1) The court of directors of the Bank of England shall become the board of directors of the Bank of England.
	(2) Accordingly, in the Bank of England Act 1998—
	(a) in sections 1(1), (2) and (4), 2(1), 4(2), (3) and (4), 9A(1), (4) and (5), 9B(1), 9G(2), paragraphs 8 to 12A and 13(1) and (3A) to (6) of Schedule 1 and paragraphs 5 and 14 of Schedule 3, for “court” substitute “board”,
	(b) in section 2(2) to (4) for “court’s” substitute “board’s”, and
	(c) in paragraph 14(2) of Schedule 1, for “court” substitute “board of directors, or former members of the court of directors,”;
	and any reference to the court in any other enactment or instrument is to be read as (as appropriate) being or including a reference to the board.”

Lord Turnbull: I shall speak also to Amendments 84, 85 and 86. I believe that my colleague, the noble Lord, Lord Lawson, may speak to Amendment 87.
	For those who took part in proceedings on the Financial Services Bill in 2012 these clauses will be Groundhog Day—fighting old battles all over again. The arguments about accountability are familiar, were set out in great detail in the Treasury Committee’s report Accountability of the Bank of England, and rehearsed again in the report of the banking commission. This is not surprising, given the overlap in membership of the two groups.
	The dispute can be briefly summarised. The Bank of England’s responsibilities have been hugely enhanced, and its accountability has changed—one has to concede that—but not kept pace. Not only has the scope of the Bank’s responsibilities grown but so has its nature. It is now not just responsible for generic policies such as monetary policy or financial stability; it also has powers
	over the lives and livelihoods of individual citizens and individual businesses. It is therefore important that its accountability keeps pace with those changes.
	Just as important as the Bank of England’s accountability to Parliament is its ability to be self-critical. This is the key feature about which people were dissatisfied. The Bank should be ready to review what it has done, consider how successful it has been and draw lessons from that. One can see that at some time in the not-too-distant future, the Bank will need to review the whole exercise of QE, which involves the spending of billions and billions of pounds, and be able to review the policy candidly, even when the results may not be entirely satisfactory or the Bank thinks that it can make improvements.
	The amendment would abolish the Court of the Bank of England and replace it with a board of directors. This is the most eye-catching measure—after all, the court has existed for 319 years—but not the most important. In a sense, it is what you would do last, having made the other changes to signify that the Bank’s governance had conclusively changed. The court has some desirable features, which were noted in earlier discussions. It is a unitary board and is no longer chaired by the governor. When I worked for the Treasury, I had to recommend appointments to the court. However, it has come a long way from the old 16-member court, which was like an in-house focus group on which every region or interest imaginable was represented. It has been replaced by a 14-member court with five executives and nine non-executives.
	The Financial Services Act 2012 genuflected in the direction of improving internal review by creating an oversight committee of non-executives. I would contend that that still does not go far enough. The central recommendation in Amendment 86 is not about whether the court should be a supervisory board or a board of directors; it concerns the abolition of the oversight committee and the transfer of its responsibilities from a committee of non-executives to the whole board—as I will call it—of the Bank.
	We are seeking this change because we believe that the responsibility to be self-critical should not reside solely with the non-executive directors but should be fully embraced by the whole board, including the governor and deputy governors. Looking critically at one’s own work should be something that the governors embrace enthusiastically and not have imposed on them. It is illogical to praise the court for being a unitary board but with regard to this particular function —the function of review—to assign self-examination to the non-executive directors.
	I should make it clear that, as with the oversight committee, it is not implied that the commissioning of a review is to be done internally. The board should determine in each case how best to conduct it—whether it is to be done internally with help or to be done externally.
	The next important element of the amendments relates to expertise. The chairman of the Bank has hitherto been a highly experienced, highly respected, all-purpose FTSE chairman with an industrial rather than a financial background. Amendment 84 requires that whoever is appointed should have experience in financial matters and financial markets. However, looking
	at the advertisement that has just been issued for the new chair, I wonder whether it has really caught up with the change in the nature of the work that the Bank is now involved in. The words “prudential” and “macro” do not appear in the advertisement; nor do the words “central bank” or “knowledge of central bank work” or “knowledge of international financial policy”—for example, familiarity with the work of the Financial Stability Board. It still looks pretty old fashioned. Therefore, we are trying to change the nature of the people who are appointed to this organisation to reflect the new, wider role that it is taking on.
	With regard to the new arrangements, this proposal is not meant to trample over current operations. The review work would always take place at a time when the operation was no longer critical, so there would be a clear difference between reviewing performance in the past and day-to-day operations.
	Finally, the Treasury Committee and the parliamentary commission recommended that the board, or whatever it is called, should be smaller than the current one of 14 members. It was recommended that there should be a board of eight, including three internal members—the governor and two deputy governors—and four external members. Although the governance of the Bank has moved somewhat, my contention is that it still does not fully reflect the change in the nature of the work that it has to do.

Lord Eatwell: My Lords, we had a considerable discussion about the creation of the rather unfortunately named oversight committee, given the dual meaning of the word “oversight”, during the passage of the Financial Services Bill, now an Act. I am broadly in sympathy with the argument that the noble Lord, Lord Turnbull, has made, which carries through the logic from the ICB or the Treasury Committee—I cannot remember which had the initial discussions—through the banking commission, looking at the overall problem of Bank of England governance in the 21st century, particularly now, given its greater responsibilities.
	I should like to make only one major point, which the noble Lord, Lord Turnbull, and his colleagues, including the noble Lord, Lord Lawson, might like to consider, and that is the business of expertise. I entirely agree that the chairman should be a non-executive with considerable experience of prudential or financial matters. That is fine. However, Amendment 84 then says:
	“The persons appointed to be non-executive members of the Bank must have—
	(a) experience in the running of large organisations and financial institutions”.
	That would exclude a lot of people who would be highly desirable. It would exclude Sir John Vickers, for example, and that seems to me to be undesirable. I am very much in favour of academics being in these organisations, such as Sir John Vickers, and I would not like that area of expertise to be ruled out.
	Similarly, other distinguished people who have worked for the Bank for International Settlements, or other central banks without actually running them would be appropriate in this case. While the notion of having financial expertise and expertise in prudential regulation
	is entirely appropriate, the issue of running large organisations as an exclusive characteristic of those non-executive members is probably undesirable.

Baroness Noakes: My Lords, I shall not take much of the Committee’s time. Most of these amendments are pretty marginal to this Bill, and, as the noble Lord, Lord Turnbull, said, it feels as if we are refighting the battles that we so much enjoyed on the previous Financial Services Bill.
	I should like to make a small contribution on the expertise point. I believe that it is a matter of principle; it is not good to specify in legislation the characteristics that holders of particular offices should have. Things change over time and rapidly become out of date. They are useful things to debate but not in the context of writing legislation. In particular, the non-executive community should be a balance of skills and expertise. To follow the formula here, they have all to be this impossible person in having experience of running large organisations and financial institutions, and expertise in prudential policy. The gene pool is pretty limited on those, and to write that into legislation is a recipe for not being able to fill the posts as they come vacant. I am sure that it is really enjoyable to go back over all those debates that we had and to relive the points that have been raised by the Treasury Select Committee in another place, but for my purposes they are not necessary for this Bill.

Lord Newby: My Lords, as noble Lords have said, the governance of the Bank of England was debated at great length just a year ago during the passage of the Financial Services Act. As a result of those debates, the Government accepted that the additional responsibilities for financial stability transferred to the Bank would put strain on its governance structures, and as a result we provided for a powerful new oversight committee, which has been established as a sub-committee of the Bank’s court.
	These changes were introduced as recently as April this year and should be allowed time to develop. Making further changes now would serve only to introduce uncertainty into the Bank’s governance at a time of significant change in its senior management. It would also prevent the new system having time to prove itself. Moreover, it is the Government’s view that that the amendments would weaken rather than strengthen the Bank’s governance structures.
	I shall deal with the amendments in turn. Amendment 83 proposes that the name of the governing body should change from the court to the board of directors. Our view is simple: changing the name of the court would make no difference to how it operates in practice. Indeed, in substance the court now operates along the same lines as a modern plc board. It has a clear division between the role of the chief executive and non-executive chair; it is made up of majority of independent non-executive directors; and there are formal, transparent appointment procedures for executive and non-executive directors alike.
	Amendment 84 proposes that the number of non-executive directors should be reduced from nine to four and would require the appointment of a non-executive chairman. The reduction in the number of
	non-executive directors would drastically alter the balance of membership of the Bank’s governing body, resulting in an equal number of executive and non-executive members. It is our view that this would significantly reduce the level of independent advice and challenge available to the governors and increase the risk of decision-making becoming dominated by a small group. The court already has a non-executive chair, so we believe this proposal is unnecessary.
	Amendments 85 and 86 propose abolishing the new oversight committee and rolling its powers into the proposed new board of directors. This would be a backward step for the accountability of the Bank. The oversight committee, which is made up exclusively of non-executives, was established to provide stronger challenge to the Bank’s executive. It has a clear remit to monitor the Bank’s performance against its objectives and strategy, including the Bank’s monetary and financial policy objectives. In order to deliver these responsibilities, the committee has the power to appoint any person to review any matter. These powers cover not only the Bank’s operational performance but also its policy decisions. These responsibilities are very important to the accountability of the Bank, and the Government believe they must continue to be carried out by a non-executive body independent from the policy-making process. These amendments would transfer the powers of the oversight committee to a board of directors whose membership included the governor and three deputy governors of the Bank. It cannot be right for the governors to have a role in scrutinising the policy processes that they themselves are responsible for administering, especially when the processes in question are of such vital national importance.
	These amendments also seek to introduce more specific legislation to govern how the performance of the Bank’s policy functions are monitored. This is unnecessary. The oversight committee already has wide-ranging powers to review the Bank’s performance in relation to any matter, including specific provision to review the procedures of the MPC and Financial Policy Committee. The Government also believe that it is unnecessary to introduce legislation covering requests for information. The current arrangements are effective, and historically the Bank has been very co-operative with both the Treasury and Parliament. Moreover, Parliament already has wide-ranging powers to hold public authorities to account, including the power to call any witnesses to appear in front of any of its committees, as the governors of the Bank of England know only too well.
	Amendment 87 would require the Chancellor to appoint an additional external member to the FPC with experience of financial crises. The FPC’s objectives—

Lord Lawson of Blaby: It has not been moved yet.

Lord Newby: I believe it is in this group. I hope that noble Lords will not mind if I deal very briefly with it, and we will come back to it if that is the wish of the House. Amendment 87 would require the Chancellor to appoint an additional external member with experience of financial crises. The FPC’s objectives are to exercise its functions with a view to contributing to the achievement
	of the Bank of England’s financial stability objective and, subject to that, support the economic policy of Her Majesty’s Government, including their objectives for growth and employment. The Government agree with the commission on the importance of ensuring that the FPC has the necessary expertise and experience to understand and draw lessons from history. The current membership of the FPC equips it to do so. In the Government’s response to the PCBS we will take this into account, alongside other relevant factors, when making future appointments to the FPC. However, I do not think it is either necessary or desirable to include a provision of this nature in legislation. It risks constraining the Government’s flexibility, as the noble Baroness, Lady Noakes said, to appoint the best candidates by placing particular emphasis on only one of a number of criteria relevant to the appointment process.
	I am also not persuaded that the balance of the FPC should be changed by the addition of a fifth external member. The current composition strikes the right balance between ensuring that there is sufficient input from the Bank, as executive, and internal Bank of England expertise, while supporting the role of the external non-executives in providing a challenge to members’ thinking. Furthermore, the oversight committee, a sub-committee of the Court of Directors consisting of the non-executive directors of the Bank, is able to undertake or commission reviews of the FPC’s performance, ensuring that it is held to account for its decisions. The oversight committee also monitors the processes of the FPC to ensure that all members have the required information and to tackle any emergence of groupthink. In view of these arguments, I hope the noble Lord will withdraw his amendment.

Lord Lawson of Blaby: My Lords, my noble friend the Minister has just pathetically addressed Amendment 87. None of his arguments stack up. We are saying here that it would be desirable—I cannot understand why the Government are opposing this—that there should be an additional external member who would have great knowledge and he might even be an academic, which would enormously please the noble Lord, Lord Eatwell. However, he need not be an academic; he could be someone who had a great knowledge of past financial and banking crises.
	I think it was the philosopher Immanuel Kant who first observed that the only lesson of history is that no one ever learns the lessons of history. Financial crises are not unique; there have been a series of them over the years, both in this country and in the western world more generally. We commissioned a study of past financial crises. It was conducted by an excellent man, Mr John Sutherland of the Bank of England. It is remarkable how the same mistakes were made time and again. Everyone knows now about the crisis of 2008, but the time will come when that generation will have learnt the lessons of their own lifetime but not of the past, and it would be extremely useful to have someone on the Financial Policy Committee with such knowledge and expertise. It may not prevent a further substantial crisis but it will, at trivial cost, reduce the risk significantly. I cannot understand why the Government object to this.
	My noble friend the Minister said that there should not be this guidance; that the Government should be able to appoint the best people. In other words, they should be able to appoint people who have no knowledge of past financial crises. Why do they want to do that? Why on earth is the reason they should want to do that when they have been given this opportunity to buttress all the other excellent measures in the Bill with someone on the FPC who has some knowledge and understanding of previous financial crises? Such knowledge is not widespread among the great majority of people. I have known this neck of the woods for a long time and there is very little knowledge of previous financial crises, yet there is a lot to be learned from them. It seems to me that the Government could easily accept having someone on the FPC who has this knowledge and I cannot understand why they do not do so.

Lord McFall of Alcluith: My Lords, I support the noble Lord, Lord Lawson, on that point. The historical issue is extremely important. If all MPC members had a copy of Adam Smith’s The Wealth of Nations—Adam Smith was a professor of moral philosophy in Glasgow University 250 years ago—we would not be in this crisis. If we could give them something from the 20th century, it would be John Kenneth Galbraith’s treatise. As he said, all financial crises have leverage at their core. In many ways, as the City historian David Kynaston said, the banking community has to come into the rest of society; it has been an island apart from it.
	I remember when I was chairman of the Treasury Select Committee and Sir Richard Lambert was appointed to the Monetary Policy Committee. All flutters were let loose because he was not an economist and therefore could not know about or have an intelligent opinion on the MPC. He proved that he was efficient and in fact the banking community is now calling on him to chair a committee so that it can re-engage with the rest of society.
	I remember when Professor Danny Blanchflower was appointed to the Monetary Policy Committee. He was resident professor of economics at Dartmouth College but those with the closed-shop mentality did not want such an individual because he was in America. However, we were in the jet age and he came across every couple of months for the MPC. He gave us an insight into the US labour market and US housing.
	My plea to the Minister is to get rid of the mentality that it is only economists and those who are in the system who understand it. This crisis has had a hugely detrimental effect on society. If the economists again do not engage with society, then that is where problems will arise.
	Professor Larry Summers, who was a contender for the Treasury Secretary’s job and is the Charles W Eliot Professor at Harvard, said:
	“The financial crisis has made me rethink everything about economics”.
	That is what he has done. The link between economics and society is so important. Let us get rid of the elitism; let us get rid of the closed shop; let us let in people with experience who understand society and can impart to people who have the great gift of economics
	the knowledge that they are part of society and that the consequences to society will be dire if they do not have a wide perspective on the implications of their actions.

Lord Higgins: My Lords, we are clearly getting a proliferation of Bank of England committees. We have both the Monetary Policy Committee and the Financial Policy Committee. Can the Minister say briefly precisely what the responsibilities will be of the Financial Policy Committee?

Lord Newby: My Lords, I will answer that question. The principal role of the Financial Policy Committee and its principal area of responsibility is to maintain the stability of the financial system. That is very different from any of the other committees established by the Bank. As for people on the FPC who have any understanding of financial crises, at the moment, Dr Donald Kohn, for example, clearly falls into the category of people with that ability. The former governor believed that he had extensive knowledge of financial history, and therefore there was and is no lack of it on the relevant committees, even without the provision on the face of the Bill.

Lord Turnbull: I listened to the responses to my intervention and divide them into two categories. One is points made by the noble Lord, Lord Eatwell, the Minister and the noble Baroness, Lady Noakes, on specifying expertise and skill. I can see some force in those points. If we are going to have the opportunity, I will try to improve on it. My main area of disagreement is that I just do not agree with the idea that the oversight committee—the repository of who is responsible for reviewing what the Bank has done—should be hived off to a committee of non-executive directors. It should be built into the DNA of the whole organisation. However, I can see I am not going to be able to persuade noble Lords of that, so—

Lord Lawson of Blaby: Before the noble Lord withdraws the amendment, I would like to correct the Minister on what he said before about the noble Lord, Lord King—the former Sir Mervyn King. He is a very old friend of mine, and I can assure the House that in advance of this crisis, he had no knowledge whatever: it was not his interest. He was interested in two things: monetary policy and microeconomics. He was very good at microeconomics, but he had no knowledge or interest in past financial crises at all. He mugged it up later, of course, after the crisis broke. Of course he mugged it up: he is a clever man and able to do so, but I am afraid that the Minister was briefed by his officials to say something totally false and misleading.

Lord McFall of Alcluith: The noble Lord, Lord King, whom I know as well and for whom I have tremendous respect, told me on many occasions that he attended MIT for his PhD. He shared an office with Ben Bernanke, who was an historian of financial crises in the 1930s. He assured me that he learned quite a lot in those three years.

Lord Turnbull: I beg leave to withdraw the amendment.
	Amendment 83 withdrawn.
	Amendments 84 to 87 not moved.
	Clause 15 agreed.
	Amendment 88
	 Moved by Lord Newby
	88: After Clause 15, insert the following new Clause—
	“Building societies
	Schedule (Building societies) (which contains provision about building societies) has effect.”

Lord Newby: My Lords, this amendment modernises building societies legislation and enables them to compete on more of a level footing with banks.
	In the Government’s founding document, the coalition agreement, we set out our commitment to,
	“promote mutuals and foster diversity in financial services”.
	This commitment underscores the importance that we attach to the contribution that mutuals make to the economy and shows our determination to support them.
	Building societies play a central role in the mutual sector. They provide vital services for their members, taking savings deposits and providing mortgages. Indeed, the sector has come through the financial crisis in good health, and has been responsible for much of the new mortgage lending and lending to first-time buyers in the UK in recent years. Building societies also regularly outperform the other retail banks in terms of customer satisfaction.
	The Government are keen to ensure that the sector continues to play an integral role in our financial services sector. That is why, in last year’s consultation The Future of Building Societies, the Government asked the building society sector whether there were any changes to the Building Societies Act which would remove unnecessary limitations or barriers to growth, while preserving the distinctive and traditional building society model. Following that consultation, the Government now propose to make several amendments to the Building Societies Act.
	The amendments will, first, make it easier for building societies to communicate with their members electronically rather than by paper. This is obviously in line with what banks can do. Secondly, they will allow societies to create floating charges. At the moment, societies can create fixed charges, but are not permitted to grant security over fluctuating assets. This causes practical difficulties, because floating charges are commonplace in financial services. The ban was originally introduced in 1997 to prevent holders of floating charges taking control of a building society, but due to changes in insolvency law this threat no longer exists.
	Thirdly, the amendments will change the classification of small business deposits for the purposes of calculating the proportion of a building society’s funding from wholesale sources. Under the Building Societies Act, no more than 50% of a building society’s funding can
	be wholesale funding. This amendment will mean that a certain amount of small business deposits will no longer count as wholesale funding. The amendment will give societies greater freedom to source wholesale funding, and creates a bigger incentive for societies to compete for small business deposits.
	Fourthly, the amendments will allow owners of deferred shares, which are a type of mutual capital instrument, to be eligible to receive shares or cash payment on a demutualisation, irrespective of how long they have held the shares. This will provide an exception to the existing rule that shareholders must have held shares in the society for at least two years. This exception is necessary to remove the risk that deferred shares which are categorised as tier 1 capital would be degraded to tier 2 capital on a demutualisation, because the holder was not able to be given shares. Fifthly, I should add that our new provision makes it clear that the restriction applies to any right to acquire shares by members, and not just rights to acquire shares in priority to others, as is currently the case. The existing provision has not worked as intended and the amendments also correct that.
	Sixthly, the amendments will allow building societies to change their financial year to any day in the year, not just 31 December. That is in line with banks. Seventhly, they will remove the requirement for building societies to provide new members with a copy of the latest summary financial statement. There is no equivalent requirement for banks, and this will have cost benefits. Eighthly, they will remove the requirement for societies to disclose information in their annual business statement about officers who are not directors. Such disclosure is excessive, time-consuming and costly, and there is no equivalent requirement for banks.
	Taken together, these amendments provide significant modernisations to the legislative framework for building societies, and I commend them to the House.

Lord Eatwell: My Lords, in general these are desirable and beneficial changes, although they do not really represent the great boost to the growth of the mutual sector which we might have expected. However, I want to raise just two major issues. The increase in the use of electronic communication, particularly given the typical customer profile of building societies, raises the possibility that certain members will be disadvantaged with respect to the availability of regular information and of course the summary financial statement, which they should be able to receive in order to understand the overall status and security of their building society. Is the noble Lord content, and can he reassure the House, that there are suitable safeguards so that those who do not have ready access to electronic communication receive appropriate paper copies?
	Turning to the issue of owners of preferred shares, can the noble Lord reassure me that the definition of ownership is the same as for those who have held shares for two years? The noble Lord may remember that initially when building societies were demutualised this caused problems, because if Mr and Mrs Smith held a joint account, in fact only Mr Smith was deemed to be the owner. If Mr Smith happened to die within the two-year period, Mrs Smith did not then gain mutualisation advantages. In a Private Member’s
	Bill which I helped take through the House, we changed that regulation so that in that circumstance both Mr and Mrs Smith would have the advantage if one of them was deceased. Even young Jimmy Smith would have the same advantage if his parents were killed in a car accident. Does the definition of ownership in this case have that broad scope that was specifically created for the demutualisation efforts—in other words, the owners are not the first-named person on the account but can include both a spouse or a partner and a first child?

Lord Higgins: As I understand it, the Government are proposing to remove the provision that on demutualisation people had to have held the shares for two years beforehand. Is there not some argument in favour of that? Otherwise, if it seems possible that a demutualisation will take place, there will be a sudden rush for people to benefit and obtain a purely short-term gain, as against those who have invested in the mutual for some time.

Baroness Noakes: My Lords, I am probably one of the few Members of your Lordships’ House who does not wear rose-tinted spectacles when it comes to the mutual sector. I am usually filled with slight horror when people tell me that they are going to modernise this wonderful sector and I am not particularly interested in the fact that it was in the coalition agreement. That is because we have seen a major failure of the mutual sector in recent years—namely, in relation to the Co-op Bank—and the history of the building society sector is one of failed building societies. However, many of the things in these amendments are not terribly important. Electronic versions of documents and the like may well help to reduce the cost of servicing very large member bases. My only concern is the liberalisation of the amount of funding that building societies can have, which potentially exposes the sector to greater risks. I would want to be assured by my noble friend the Minister that the Prudential Regulation Authority has no intention of relaxing its normal prudential approach to building societies, as there is no evidence that given greater freedoms they will use them wisely.

Lord Newby: My Lords, the noble Lord, Lord Eatwell, asked me two questions. The first one was about electronic communications and the age profile of members of building societies. This is a permissive amendment, and if members wish to be given paper copies of documents then building societies in future will still be required to provide them in paper form. In terms of the owners of preferred shares, I believe that preferred shares are typically owned within the financial services sector, so they are rather different from personal shares. It is obviously a highly technical point, and I will write to the noble Lord about it.
	The noble Lord, Lord Higgins, asked whether we were changing the two-year bar in terms of shareholders and votes on demutualisation. No, we are not. For ordinary, individual shareholders in building societies, the rules do not change. There are never more than a very small number of preferred shareholders because they are providing a specific form of financial instrument
	to building societies. The concern is, as I said, that unless there was an exception to the existing rule, there is a possibility that deferred shares would move from tier 1 to tier 2 if a building society demutualised. There is no prospect of the number of deferred shareholders swaying a result on demutualisation because they are not the same people as the ordinary people who have a retail account at the building society.
	As for the point made by the noble Baroness, Lady Noakes, the Co-op Bank is of course not a mutual; it is a straightforward plc. It was originally owned 100% by the Co-operative Group but it is no longer, so to the extent that there may be problems with the Co-op Bank, the mutuality issue is not particularly relevant. However, there is no major relaxation in these provisions regarding the amount of funding. The suggestion that deposits held by small businesses should be treated in the same way as those held by private individuals is just common sense. It does not have a very significant impact on the funding position. I assure the noble Baroness that there is no suggestion that the PRA should reduce the rules around building societies because although many of us are fond of building societies, nobody can claim that they were immune from some of the excesses of the late noughties.
	Amendment 88 agreed.
	Amendments 89 and 90 not moved.
	Amendment 91
	 Moved by Lord McFall of Alcluith
	91: After Clause 15, insert the following new Clause—
	“Independent Banking Regulatory Decisions Committee of the FCA
	(1) After section 1L of FSMA 2000 insert—
	“1LA Independent Banking Regulatory Decisions Committee
	(1) There is to be a Banking Regulatory Decisions Committee of the FCA (“the Committee”).
	(2) The members of the Committee are to be appointed jointly by the FCA and the PRA and hold office in accordance with the terms of their appointment.
	(3) The person appointed to chair the Committee must have experience of acting in a senior judicial capacity.
	(4) A majority of the members of the Committee must be persons appearing to the FCA and the PRA to have (and to have had) no professional connection with the provision of financial services.
	(5) The remaining members of the Committee must include persons appearing to the FCA and the PRA to have extensive experience in senior roles in banking.
	(6) The function of the Committee is to exercise the banking regulatory decisions function of the FCA and the PRA.
	(7) “Banking regulatory decisions function” means the function of taking decisions for enforcing compliance with relevant requirements, within the meaning of Part 14, in cases where the authorised person is a bank.
	(8) The banking regulatory decisions function of the FCA and the PRA is delegated to the Committee; and references in this Act to the FCA and the PRA in relation to that function are to be construed accordingly.
	(9) The FCA shall meet the reasonable costs of the Committee in discharging its function but the Committee—
	(a) is not subject to direction by the FCA or the PRA as to the exercise of its function,
	(b) is not accountable to the FCA or the PRA for the exercise of its function, and
	(c) may appoint its own officers and staff.
	(10) At least once a year the Committee must make a report to the Treasury on the discharge of its function.
	(11) The Treasury must lay before Parliament a copy of each report received by them under subsection (10).
	(12) In this section “bank” has the meaning given by section 2 of the Banking Act 2009.”
	(2) The FCA and the PRA must carry out a review of the operation of the Banking Regulatory Decisions Committee of the FCA.
	(3) The review must be completed before the end of 2018.
	(4) The FCA and the PRA must give the Treasury a report of the review.
	(5) The report must include an assessment of whether the function of the Banking Regulatory Decisions Committee would be better discharged by a body that was entirely independent of the FCA and the PRA.
	(6) The Treasury must lay a copy of the report before Parliament and publish it in such manner as they think fit.”

Lord McFall of Alcluith: My Lords, this amendment is about the regulatory decisions committee that the Parliamentary Commission on Banking Standards proposed, giving responsibility for banking enforcement decisions taken by the FCA and the PRA to a new, statutory autonomous body within the FCA. Unfortunately, to date the Government have rejected that proposal.
	In our evidence sessions we took evidence from a number of bodies, such as the medical and legal professions. In these established professions, a number of steps are taken to separate disciplinary functions from the supervision of professional development. In the legal profession, for example, the Solicitors Disciplinary Tribunal is totally separate from the Solicitors Regulation Authority and has a mixture of lay and professional members. The SRA has no say in its composition. It is in effect a prosecutor before a tribunal.
	We took evidence from Sir Peter Rubin, who chairs the General Medical Council, who described similar recent developments in the medical profession. He told us that following the Shipman inquiry, it was pointed out to the GMC that its previous arrangements, whereby it was the police, the Crown Prosecution Service, the judge, jury and everything else, in his words, were incompatible with Section 6 of the Human Rights Act. Essentially, no one should adjudge their own cause so last year, as he told us, they hived off the adjudication process under which cases against doctors are heard to a separate body in a separate building. It is still funded by the GMC but, crucially, a judge now runs the adjudication process. It is now petitioning Parliament to give the GMC the power to appeal when it does not agree with one of its findings. In his opinion, that would really get the complete separation going.
	In our deliberations the commission noted that an entirely separate statutory body for enforcement could be a solution but we recognised that there were a number of obstacles to that, not least because it would generate a new regulatory body that could be a source of confusion and conflict. An independent enforcement body would still be reliant on supervisors for many
	referrals that could in effect result in fewer cases if there were any problems co-operating with the FCA and the PRA. The body that we mentioned should be chaired by someone with senior judicial experience.
	We also recommended a joint review by the regulators of their enforcement arrangements in 2018 but to date the Government have been silent on that issue. In the debate in the House of Commons, our chairman Andrew Tyrie made the point that the Government have rejected the need to wind up United Kingdom Financial Investments, and that the regulatory reforms to provide statutory autonomy for the decisions committee is especially regrettable. I would like the Government to give us their views on that joint approach by 2018.
	We are seeking a body to be appointed by agreement between the boards of the PRA and the FCA with a majority of members with a non-banking or financial services background, containing several members with extensive and senior banking experience. It should be chaired by a person with senior judicial experience. In that way, it could publish a separate annual report of its activities and of the lessons for banks that emerged from its decisions.
	When the FCA representatives were giving us evidence, Tracey McDermott, the director of enforcement, told us that the FSA had still not solved the problem of ensuring that senior figures were properly subject to the enforcement process. She said:
	“The focus on senior management is something that we have talked about a lot in the FSA but we have found it very difficult to bring home the responsibility, particularly in larger firms, to those who are further up because of confused lines of accountability and because of confused responsibility”.
	I would ask the Minister to keep in mind that there is an inherent tension between the role of real-time regulators and the enforcement function that can involve reaching judgments on which matters supervisors were involved in at the time, and that regulators are focused on the big picture, such as maintaining financial stability. Again, from experience I have witnessed the enforcement process being devalued in that area. There were a number of areas where the FSA at the time should have been on to enforcement procedures, particularly in the 2004-06 period of the financial crisis. It avoided those areas.
	The proposal that we are making here is quite a modest one. It is for a statutory autonomous body within the FCA, and in 2018 there should be a review. I hope that Government will take those propositions seriously, reflect on them and come back to us. I beg to move.

Lord Eatwell: My Lords, I was a member of the first regulatory decisions committee established under the Financial Services Authority. It was established at that time because it was felt that the FSA’s procedures would run counter to the Human Rights Act, in the sense that those procedures were both judge and jury. The role of the committee was to act as an independent assessor of the regulatory and enforcement proposals put forward by the FSA.
	It worked reasonably well, at least from the perspective of a member of the committee, but not from the perspective of the FSA; we tended to give it a rather difficult time when we felt that its cases were ill prepared
	and ill focused. It played a particular role for a short period. Then, after a particular dramatic case was lost by the FSA in the tribunal, the FSA decided that it did not like the RDC being foisted upon it, and the role of the RDC was slowly downgraded. I think that was unfortunate—obviously I do, because I participated in the early days when I thought it was working rather well, but be that as it may.
	The role here is slightly different from the challenge role that the RDC played. Will the Minister address the question of whether any effective enforcement role for a regulator is compatible with the Human Rights Act?

Lord Newby: My Lords, we have considered extremely carefully all the recommendations from the PCBS. They contain a number of observations about the importance of banking expertise, accountability, clarity of responsibility and consistency of decision-making, which we certainly agree with.
	I shall explain how the current arrangements already deliver all those things in a way that is tailored to the regulators’ individual approaches. First, on expertise, the call to create a separate decisions committee solely for the banking sector partly reflects concerns about the level of banking expertise on the RDC. At the FCA, the regulatory decisions committee is responsible for taking enforcement decisions. Its remit extends beyond banking, but that does not mean that it does not contain banking expertise. Indeed, the FCA has recently addressed the balance of expertise on the RDC through the appointment of two new members with banking expertise. At the PRA, of course there is no lack of banking expertise on its decision-making committees.
	Secondly, on clarity of roles and responsibility, Section 395 of FiSMA provides for the separation of supervision from disciplinary decision-making. Under the current arrangements, there is also a clear separation of the function of making enforcement decisions from that of judicial consideration of the issue.
	I do not accept the argument that the fact that the PRA does not have an RDC gives rise to human rights concerns. We do not believe that there is a problem on that front. The prospect of decisions being appealed to the Upper Tribunal means that the system already provides an independent judicial challenge function to the decision-making process for all financial services cases. The proposed requirement for regulatory decisions to be made by a committee chaired by a person with senior judicial experience, on the other hand, would appear to give this new committee a quasi-judicial role more suitable for an external review tribunal than an internal decision-making body.
	On consistency of decision-making, I understand that a key part of the recommendation was to encourage a greater consistency of decision-making across the PRA and the FCA. Unfortunately, I believe that the creation of an additional statutory committee for banks would create only new inconsistency. The new committee relates only to banking, so any enforcement decisions relating to a building society, insurer or investment firm would be made under the existing framework and the FCA would have to maintain the existing RDC. This would mean one body dealing
	with the breach of a rule by a bank and a different body dealing with the same breach of the same rule by a building society, with potentially different outcomes, which seems undesirable. While I think that the PCBS report contains some useful observations in this area, I believe that the current, flexible arrangements are the right ones. On that basis, I would be grateful if the noble Lord withdrew his amendment.

Lord McFall of Alcluith: I beg leave to withdraw the amendment.
	Amendment 91 withdrawn.
	Amendment 91A
	 Moved by Lord Lawson of Blaby
	91A: After Clause 15, insert the following new Clause—
	“Excessive lobbying by banks
	(1) If the Governor thinks that the way in which banks are lobbying about regulation or policy is creating a risk to the stability or effective regulation of the banking sector, the Governor must lay a report before Parliament.
	(2) In subsection (1) “lobbying” means activities designed to influence Her Majesty’s Government, the FCA or the Bank of England.
	(3) In this section “bank” has the meaning given by section 2 of the Banking Act 2009.”

Lord Lawson of Blaby: My Lords, I shall be brief; the hour is getting late. Like the amendment that I spoke to earlier about the desirability of having somebody on the Financial Policy Committee who had some knowledge of past financial crises, which I regret that the Government have not accepted, this amendment is also a proposal of the Parliamentary Commission on Banking Standards. It is about lobbying. The context of this applies to all bank lobbying, but it is particularly important in the context of what we were discussing last week in Committee, namely the ring-fence. We were very concerned, as my noble friend the Minister will recall, that this should be strengthened and kept under review. We had various proposals to that end.
	In the United States, the parallel was the separation through the Glass-Steagall Act of 1933. That, as my noble friend the Minister will be aware, was gradually eroded over time. It was eroded in two ways. First, the banks found ways round it to some extent. More importantly, by extensive lobbying, the banks were able to get the Government of the day to do a little amendment here and a little amendment there, which created loopholes which did not previously exist. We know that, following the recommendation for the ring-fence in the Vickers commission and report. The banks only accepted it with gritted teeth. They were not happy; they accepted it very reluctantly. They will clearly be seeking any way they can, including through lobbying, to get a change here and a change there over time which will enable them to undermine the ring-fence. That is natural; they feel it to be in their interest.
	Times have changed. When I became Chancellor 30 years ago, the Bank of England had no responsibility for monetary policy, which was my responsibility. It did however have the dual responsibility of the regulation and supervision of the banking sector, and being the
	sponsoring department for banks, representing the interests of the banks to the Chancellor of the day. If the banks had points to make in those days, they would go first and only to the Governor of the Bank of England. The governor would assess whether he felt there was merit in what they were saying, and if there was he would go and see the Chancellor and put the banks’ points to him. That has all changed. Now, the banks go directly to the Government of the day. Indeed it is no secret that the carpets in Number 10 and Number 11 Downing Street have been worn almost threadbare by the lobbying of the banks. That caused great concern to the previous Governor of the Bank of England, and we had some concern about it in the commission. We felt that the best remedy was encapsulated in this amendment: that if the Governor of the Bank of England of the day feels concerned, he should be able to flag it up in a public way. The hope is that that deterrent will keep the amount of lobbying within reasonable bounds. There is the opportunity to do that, and indeed there is a requirement to do that.
	That is what we are suggesting in this amendment. Even though the hour is late, I hope that my noble friend will reflect seriously on this proposal and the merit of accepting it.

Lord Newby: My Lords, I agree with my noble friend that the Governor of the Bank of England should never hesitate to speak out should he have concerns about the influence of lobbying by the financial services industry. However, we do not believe that there is a problem. Indeed, I fully expect that the governor would raise the alarm to both the Government and Parliament if he believed that any particular factor or circumstances, including lobbying by a bank, seriously put at risk the Bank’s ability to meet its objectives.
	However, the Government do not believe that it is either necessary or desirable for this specific requirement to be placed on the statute book. The Financial Services Act 2012 brought together responsibility for all aspects of financial stability within the Bank of England group. As a result, the Bank has a statutory objective to protect and enhance the stability of the financial system. The Government are confident that the governor will act appropriately if he believes that excessive lobbing is impeding the Bank’s ability to meet that objective, which would obviously be the case if there was lobbying with the intention of undermining the ring-fence. Indeed, the Bank has already committed to raising the alarm in such circumstances in its response to the Commission on Banking Standards.
	Therefore, while we fully accept that one of the roles of the governor is to raise the alarm if he believes that bank lobbying or indeed anything else creates a risk of undermining the stability or regulation of the banking sector, it is simply not necessary to have such a requirement in the Bill.

Lord Lawson of Blaby: I have heard what my noble friend has said and I am slightly reassured. I hope that the present Governor of the Bank of England will read those words and will realise that, without it being on the statute book, he has been charged by the
	Government with a duty to raise the alarm if there is any case of excessive lobbying. I am very glad to have that on the record, and I beg leave to withdraw the amendment.
	Amendment 91A withdrawn.
	Amendment 91B
	 Moved by Lord Phillips of Sudbury
	91B: After Clause 15, insert the following new Clause—
	“Review of the exemption of certain business gaming contracts from the Gaming Acts
	(1) The Treasury must institute a review of the effects of certain business gaming contracts having been made enforceable by the repeal of certain provisions of the Gaming Acts pursuant to the Financial Services Act 1986 (as amended).
	(2) “Effect” shall include the social, cultural and ethical effects.
	(3) The Treasury may appoint one or more persons to undertake the review after consultation with the Bank of England, the PRA, the FCA and such others as it decides on such terms as it shall think fit.
	(4) The review shall culminate in a report to the Treasury within two years of the coming into force of this Act.
	(5) The Treasury must lay the report before Parliament and thereafter publish the same.”

Lord Phillips of Sudbury: My Lords, after 10.20 pm and with less than a dozen of us still hanging on, I shall be remarkably brief in moving this amendment, which I hope has the advantage of self-clarity.
	My starting point is the Financial Services Act 1986, which, as noble Lords will remember, ushered in big bang. Section 63 of and Schedule 1 to the 1986 Act exempted certain City dealing contracts from the effects of the Gaming Acts 1845 and 1892. Up until that time those contracts—which were purely gaming contracts—were unenforceable. Since then, the exemptions have been extended, first by the Financial Services and Markets Act 2000 and further by the Gambling Act 2005.
	It is a matter of considerable debate, within the City in particular, about just what the impact of this extremely fast-growing market has been over the years, because fast-growing it has been. I suppose that among all the types of City dealing that have benefited most from exemption from the Gaming Acts there would be much hedge fund activity, which now runs into trades worth trillions of pounds.
	It would be beneficial for all concerned to have a review, simply set up and in the hands of the Treasury. The disadvantages of this type of market may be few; they may be beneficial. Many consider that they are a dangerous element in our economic life, because they exaggerate swings and drive markets to extremes. I am afraid that they are susceptible to corruption, in particular, and the most famous or notorious summation of these markets, depending on your point of view, was when Adair Turner—the noble Lord, Lord Turner of Ecchinswell—described them as “socially useless”. I seem to remember from when I was at Cambridge reading economics, ploughing through John Maynard Keynes’s General Theory, that there was one very striking comment in there. I have not quite got it word
	for word, but the gist is that when the operation of the markets becomes akin to that of a casino, the job is likely to be ill done.
	This amendment carries no pre-judgement, but will allow us a cool and collected—and, some would say, overdue—look at the impact of this particular market, the gambling market as you might call it, and see just how it stands. Noble Lords will note in particular that when saying that the Treasury must institute a review of the effects of these gaming contracts, in proposed new subsection (2) of Amendment 91B “effect” is defined as including the,
	“social, cultural and ethical effects”,
	of this type of gaming business.
	As I say, the framework I have provided is a light one. The Treasury will appoint the members of the review committee and describe its terms of reference within the constraints I have put down. In deciding who is going to be part of the review, the Treasury has to consult the Bank of England, the PRA and the FCA. Then there is simply an obligation for the review committee to report within two years of the Act coming into force, and for the Treasury to lay the report before Parliament and then publish more widely. I hope that this will commend itself to the House. I beg to move.

Lord Newby: My Lords, this amendment proposes that the Treasury should be required to undertake a review into the effects, including the social, cultural and ethical effects, of exempting certain gaming contracts from the rule which used to provide that no gaming contract or wager can be enforced in a court of law. That exemption applied to certain categories of financial contracts, such as derivative contracts like contracts for differences, which could be regarded as gaming contracts within the meaning of the Gaming Acts because of their characteristics. Only those transactions which were subject to regulation under Financial Services legislation, such as the Financial Services Act 1986, and more recently the Financial Services and Markets Act 2000, ever benefited from the exemption.
	However, the law has changed significantly in this area. Since the Gambling Act 2005 came into force, gaming contracts and wagers are now enforceable through the courts, except in Northern Ireland, and the effect of the exemption is therefore limited to Northern Ireland. In the rest of the United Kingdom, there is no difference in the enforceability of derivative investments and other gaming contracts and wagers. Much of the purpose of the review proposed has therefore, in the Government’s view, gone.
	It is also unclear what action could be taken following such a review. Trading in financial instruments is subject to European law, and in particular the markets in financial instruments directive. This limits the extent of the action this country could take in relation to financial instruments falling within the scope of the directive. It is unclear what benefits such a review could bring and we suggest that the noble Lord withdraws his amendment on the basis that it is not proportionate or objectively justified.

Lord McFall of Alcluith: My Lords, I am surprised that the Minister is saying that we do not know what benefit this could bring. After all this is a derivatives
	market. We are talking about a derivatives market globally with $66 trillion or more. Not only is there a complexity in that market but there is a total opaqueness. Warren Buffett called derivatives weapons of mass financial destruction. So there is benefit in looking at this issue. Given that the parliamentary banking standards commission’s remit was to look at culture and standards, I would like the Minister to reflect on that issue with culture. In my opinion, culture is about behaviour and ethics is about conflicts of interest. In an opaque market, there are many conflicts of interest, and therefore it would do the Government good to open up this market and see what benefits could result.
	The noble Lord, Lord Phillips, has done the Committee a service in this matter. We know that the market will not change overnight, but we must understand what is in the market, particularly the derivatives market. I would like the Government to take this a bit more seriously than the Minister has taken it in saying that we cannot learn anything at all from this.

Lord Newby: My Lords, I would not want the noble Lord to think that the Government were being complacent at all about this issue. In particular, I would not want him to think that we were being complacent about the issue of culture. Of necessity, today we have been talking about legislative change but, as we said at an earlier stage, and as the most reverend Primate reminded us at an earlier stage in this debate, the whole question of culture is as important as legislation.
	What constitutes culture is a broad, almost philosophical question, but one key thing that is already evident is that some of the more senior managers of some of the bigger banks have recognised that, if we are to get the kind of banking system that the population as a whole is looking for, they need to change their ways. The chief executive of Barclays set out his stall when he was appointed. The way in which he has sought to instil a new culture through the organisation is very impressive. But one challenge that he has, no doubt—we see this not just in the banks but across the world, whenever there is any big change in the way things happen—is how to get a cultural change trickling down the organisation. It is not just a matter of the chief executive, for whom making a statement about culture is relatively straightforward, making that statement; that is happening, to a very acceptable degree. But how can we ensure that the culture that we require of everybody in the banks changes?
	One way in which that is going to happen is, one hopes, through the new statement of principles of banking practice that we discussed earlier. If everybody knows when they go into a bank that they are expected to behave in a different way than possibly they thought in the past and they know that, unless they follow a whole series of principles there on a piece of paper, they are liable for disciplinary procedure, they are likely to behave in a more acceptable manner. I am sure that that would be welcome across the country.
	The other big thing that we believe can help in terms of culture is the promotion of the mutuals sector that we were talking about earlier. The Nationwide
	Building Society has always been at the top of the list for customer satisfaction levels, and that shows no sign of diminishing. To the extent that the building society movement continues to grow, so will the culture improve across the system as a whole.
	I realise that I have strayed slightly from where the noble Lord started out in terms of derivatives contracts. But for most of the population, it is at the retail end that culture affects them.

The Archbishop of Canterbury: My Lords, I am slightly surprised that the Minister should be resistant to what seems to me a very reasonable amendment. One of the dangers that we have faced in the markets over many years is that of parallel markets. The derivatives markets are, as we know, opaque, as has already been remarked on, and we examined them in some detail in the banking standards commission. The computer-driven markets are also very opaque. We examined those markets and remarked that they would constitute the next great crash. When you have these gambling markets on the side that no one quite understands or knows who is participating in them, and which often take place offshore, it seems to me that at the very least there are grounds to hold an inquiry into the effect they are having on market prices through their impact on the shadow market—we should also examine the psychology of the dealers—and on those involved directly in the more regulated market.
	One of the great lessons learnt from the events of 2008 was the ineffectiveness of the clearing system for over-the-counter derivatives, which there was no means of settling. That has been one of the major problems for the liquidators of Lehmans. The gambling markets have much the same problem. We are setting up mechanisms—they are being set up internationally—to deal with the settlement of derivatives contracts, but nothing is being done in this parallel market. The noble Lord, Lord Phillips, has made a very useful point, albeit that the hour is late and it is almost 10.40 pm, which may enable this issue to become slightly clearer in terms of understanding what can be done.

Lord Phillips of Sudbury: My Lords, I am grateful to the most reverend Primate and to the noble Lord, Lord McFall. However, I am not so grateful to my noble friend the Minister, as I thought that he rather missed the point. The fact that Tom, Dick and Harry can go down to the betting shop or the local casino, run up a debt and be sued for it has nothing whatever to do with the amendment that I propose tonight. As noble Lords have commented, and as is obvious, we are dealing here with huge sums of our money which are gambled, often to the excessive benefit of the gamblers. We do not know how they function and have not looked carefully and closely, as we should, at the impact of this. I refer not so much to the economic impact, although it may be found that the destabilising effects of this market are greater than we realise, but to the ethical, cultural and social effects. For the life of me, I cannot see why a liberal-minded Government should want to staunch such an investigation. I see no downside to it; it would not be expensive and would be simple to operate. It would all be within the purview of
	the Treasury and it might yield some surprising and valuable results. I therefore hope that the Minister will give this a little further thought, as I am very inclined to bring this back on Report.

Lord Newby: My Lords, I am extremely grateful to my noble friend for clarifying exactly what lies behind his amendment. I am sorry if I in any way misconstrued it. The issues that he raises about the social and broader consequences of some aspects of the “socially useless” parts of the financial services world are obviously important. I am somewhat less certain about whether the kind of inquiry that he is seeking would produce any decisive results.
	I wonder whether he may wish to consider between now and Report whether there is another means of achieving the same result because these issues are very much in the public domain. A dry inquiry might not get us to the answer that he wanted. I wonder whether there might be some broader inquiry, bringing together groups of people with expertise and concern, possibly
	moderated by a think tank or charity, to look at some these issues. The membership of such an inquiry would be important in determining the result. Too narrow a membership would tend to produce a series of dry, probably useless, recommendations, whereas a broader group operating in a relaxed and unconstrained manner might produce more wide-ranging and socially useful conclusions.

Lord Phillips of Sudbury: I am not sure whether I am supposed to say any more to the Minister except, “Thank you”. I thought that at the end he was arguing my case rather better than I was. I will certainly think between now and next time, and talk with him. I beg leave to withdraw the amendment.
	Amendment 91B withdrawn.
	House resumed.

House adjourned at 10.41 pm.